Abstract
We derive stochastic density-matrix equations for an atom strongly driven by finite-bandwidth squeezed light. The quantum properties of the light are accounted for by a doubling of dimensions of the stochastic process for c-number electric field amplitudes. Saturation properties and the weak-field absorption spectrum of a two-level atom embedded in finite-bandwidth squeezed light and driven by a coherent field are calculated. We discuss the effect of finite bandwidth of the squeezed light in obtaining subnatural linewidth in the atomic absorption spectra, based on nonperturbative solutions of the stochastic optical Bloch equations.