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Modeling GDP with a continuous-time finance approach

Author

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  • Liu, Zhenya
  • You, Rongyu
  • Zhan, Yaosong

Abstract

We apply a continuous-time finance approach to model the GDP trajectories of the world’s two largest economies, the United States and China. Using stochastic process models and first-passage time theory, we forecast when China’s GDP will surpass that of the United States. To account for changing economic conditions, we incorporate a change-point detection method, which segments the data into periods of stable economic growth. Our results demonstrate that by considering change points, our predictions become more robust and provide valuable insights into the future economic outlook for both countries.

Suggested Citation

  • Liu, Zhenya & You, Rongyu & Zhan, Yaosong, 2025. "Modeling GDP with a continuous-time finance approach," Finance Research Letters, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:finlet:v:76:y:2025:i:c:s1544612325002351
    DOI: 10.1016/j.frl.2025.106971
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    More about this item

    Keywords

    GDP; Stochastic process; First passage time; China and united states;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • F02 - International Economics - - General - - - International Economic Order and Integration

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