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From a Hierarchy of Stochastic Differential Equations to a Hierarchy of Generalized Beta Distributions

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  • Siqi Shao
  • R. A. Serota

Abstract

We introduce a mean-reverting stochastic differential equation with a three-component stochastic term and show that it generates a hierarchy of steady-state (stationary) distributions. At the top level, the hierarchy is described by a modified-Beta distribution, while one- and two-parameter reductions produce compact-support, power-law-tailed, and exponential-type limiting families within a single stochastic framework. We then construct two generalized extensions of this hierarchy. In the first, the power transformation is applied directly at the level of the stochastic differential equation; in the second, the same transformation is applied only after the stationary modified-Beta hierarchy has been obtained. While these two procedures agree on important lower branches and limiting cases they generally differ at the top level. The generalized hierarchy is therefore not unique: nonlinear transformation and stationary-state reduction do not commute. For both routes, we derive the probability density and cumulative distribution functions, express their parameters in terms of the underlying stochastic dynamics, clarify the relations among their limiting cases, and compare the resulting families with the traditional Generalized Beta framework.

Suggested Citation

  • Siqi Shao & R. A. Serota, 2026. "From a Hierarchy of Stochastic Differential Equations to a Hierarchy of Generalized Beta Distributions," Papers 2610.10476, arXiv.org.
    • Handle: RePEc:arx:papers:2610.10476
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