Geometric Brownian motion with intermittent entries and exits

TL;DR

This paper introduces a generalized geometric Brownian motion model with asymmetric entry and exit rates, capturing realistic economic dynamics and revealing regimes and optimal exit strategies affecting system behavior.

Contribution

It extends stochastic resetting models by incorporating asymmetric entry and exit rates, analyzing their impact on long-term distribution and first-passage times.

Findings

System relaxes to a stationary distribution despite asymmetry.

Identifies three dynamical regimes based on model parameters.

Finds an optimal exit rate minimizing mean first-passage time.

Abstract

We study a generalized geometric Brownian motion framework that incorporates both entries of new units and exit mechanisms for the current population, extending earlier stochastic resetting models where these rates are treated as identical. The model captures realistic features observed in many economic observables, which can be explained as market-driven firm entries/exits, worker inflow/outflow, and income growth/loss. This model is not conservative and, despite the asymmetry in the entry and exit rates, we find that the system eventually relaxes to a stationary distribution. Moreover, our analysis reveals three distinct dynamical regimes in the moments of the distribution, arising from the interplay between volatility, drift, entry, and exit rates. We further derive the survival probability and the mean first-passage time associated with the observed variable reaching certain threshold under the competing entry-exit processes. Interestingly, we identify an optimal exit rate that minimizes the mean first-passage time, providing insights into how entry and exit policies can influence the outcome of the system. These results should be useful for understanding the long-run behavior of economic systems in which growth, volatility, entry, and exit jointly shape the evolution of heterogeneous units.