Function File: SDE = sdemrd (Speed, Level, Alpha, Sigma)
Function File: SDE = sdemrd (Speed, Level, Alpha, Sigma, OptionName, OptionValue, …)

Creates an object to represent a stochastic differential equation (SDE) in in mean-reverting drift-rate form.

dX_t = (Speed(t) * (Level(t) - X_t))dt + (diag(X_t.^Alpha(t)) * Sigma(t))dW_t.
  • (X_t) is an NVARS-dimensional process;
  • (W_t) is an NBROWNS-dimensional Wiener process.
  • Variable: Speed An NVARS-by-NVARS matrix or a function. As a function, Speed returns an NVARS-by-NVARS matrix and has either exactly one input (time: Speed(t)) or exactly two inputs (time and space: Speed(t, X_t)).
  • Variable: Level An NVARS-by-1 vector or a function. As a function, Level returns an NVARS-by-1 vector and has either exactly one input (time: Level(t)) or exactly two inputs (time and space: Level(t, X_t)).

The parameters Alpha and Sigma appear in the @sde/diffusion documentation.

See the @sde documentation for a list of optional arguments.

See also: drift, diffusion, sde.

Package: financial