SIMHESTON: MATLAB function to simulate trajectories of the spot price and volatility processes in the Heston (1993) model

Agnieszka Janek and Rafał Weron

Statistical Software Components from Boston College Department of Economics

Abstract: SIMHESTON returns a 2-column array, containing the simulated trajectories of the spot price S(t) and volatility v(t) for t=0:DELTA:N, in the model: dS(t) = mu*S(t)*dt + v^0.5*S(t)*dW1(t), dv(t) = kappa*(theta - v(t))*dt + sigma*(v(t)^0.5)*dW2(t), Cov[dW1(t),dW2(t)] = rho*dt, given starting value of the spot price process S0, starting value of the volatility process V0, drift MU, speed of mean reversion of the volatility process KAPPA,long-term mean of the volatility process THETA, volatility SIGMA, correlation between the spot price and volatility processes RHO, time endpoint N, a 2-column vector of normally distributed pseudorandom numbers NO and a flag denoting used simulation scheme (Quadratic-Exponential scheme, Euler scheme with absorption or reflection for the volatility process).

Language: MATLAB
Requires: MATLAB (tested on MATLAB ver. 7.9).
Keywords: FX option; Stochastic volatility; Heston (1993) model; Sample trajectory; Quadratic-Exponential scheme; Euler scheme; absorption; reflection. (search for similar items in EconPapers)
Date: 2010-12-27
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