Markov Analysis
Categories: Financial Theory
Markov analysis is named after a Russian: Andrei Markov.
Markov analysis is a way to forecast what a random variable will do, using only current information we have on that random variable. Sounds like woo-woo magic, we know, but trust us...this Markov guy was a smart mathematician who knew what he was doing. To “forecast” something implies that the method is logical or mathematical, and that it has data to back it up, unlike potentially biased “predictions.”
Markov analysis plays a large role in probability problems with random variables, letting us forecast the likelihood of different probable pathways (think: decision trees or large groups of people). It also has uses from firm accounting to production of goods to predicting consumer behavior...anything that includes big enough groups with some random variables.