Stochastic models are mathematical frameworks used to represent systems that exhibit randomness or uncertainty. They incorporate random variables and processes to predict future outcomes based on probabilistic behavior. These models are widely applied in various fields, including finance, biology, and engineering, to analyze complex systems where deterministic models may fall short. In a stochastic model, the outcomes are not fixed but rather influenced by chance. For example, in finance, a stochastic model might be used to forecast stock prices, taking into account factors like market volatility and economic conditions. This approach helps in making informed decisions despite the inherent unpredictability of the system.