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Lab Ass 2 (By Me)

Matlab problems

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ahnaf rafid
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29 views7 pages

Lab Ass 2 (By Me)

Matlab problems

Uploaded by

ahnaf rafid
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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%% TASK 1

%Wiener process paths


%Bpath brownianpath simulation for the interval [0,1]:

clc
clear all
randn('state',100) %set the state of randn

T=1;
N=500;
dt=T/N;
dW=sqrt(dt)*randn(1,N); %array of BM increments
W=cumsum(dW); %cumulatively summing up the increments
plot(0:dt:T,[0,W],'r-') % plot W against t
xlabel('t','FontSize',16)
ylabel('B(t)','FontSize',16,'Rotation',45)

%randn('state',100) -This line of code initializes the random number generators of


the randn function with a specific state value

%By initializing the random number generator with the same state value,we ensure
that the same sequence of random numbers is generated each time we run our program

%% TASK 2
% Euler-Maruyama

clc
clear all
randn('state',100)
T=1;
N=200;

dt=T/N;
dW=sqrt(dt)*randn(1,N); %array of BM increments
W=cumsum(dW);

mu=2;
sigma=1;
Xzero=1; %given X(0)=1

%Exact value
Xtrue=Xzero*exp((mu-0.5*sigma^2)*([dt:dt:T])+sigma*W);
figure
plot([0:dt:T],[Xzero,Xtrue],'m-')
hold on

% Euler-Maruyama (EM METHOD)


R=5;
Dt=R*dt;
L=N/R;
Xem=zeros(1,L);
Xtemp=Xzero;

% f(x)=mu*X and g(x)=sigma*X

for j=1:L
Winc=sum(dW(R*(j-1)+1:R*j));
Xtemp=Xtemp+mu*Xtemp*Dt+sigma*Xtemp*Winc;
Xem(j)=Xtemp;
end

plot([0:Dt:T],[Xzero,Xem],'r--*')
hold off
title('Geometric Brownian Motion Path')
legend('Exact','Euler-Maruyama')

error=abs(Xem(end)-Xtrue(end));
error1=abs(Xem(end/2)-Xtrue(end/2))
fprintf('at t=%2.1f error is=%5.6f\n',T,error)

%% TASK 3
% Arithmetic BM SDE

clc
clear all
randn('state',100)
T=1;
N=300;
dt=T/N;
dW=sqrt(dt)*randn(1,N); %array of BM increments
W=cumsum(dW);

mu=2;
sigma=1;
Xzero=1; %given X(0)=1

%Exact value
Xtrue=Xzero+mu*[dt:dt:T]+sigma*W;
figure
plot([0:dt:T],[Xzero,Xtrue],'m-')
hold on

% Euler-Maryama
R=4;
Dt=R*dt;
L=N/R;
Xem=zeros(1,L);
Xtemp=Xzero;

for j=1:L
Winc=sum(dW(R*(j-1)+1:R*j));
Xtemp=Xtemp+mu*Dt+sigma*Winc;
Xem(j)=Xtemp;
end

plot([0:Dt:T],[Xzero,Xem],'r--*')
hold off
title('Arithmatic Brownian Motion Path')
legend('Exact','Euler-Maruyama')

error=abs(Xem(end)-Xtrue(end));
fprintf('at t=%2.1f error is=%5.6f\n',T,error)

%% TASK 4
% Ornstein-Uhlenbeck SDE

clc
clear all
randn('state',100)
T=1;
N=2^8;

dt=T/N;
dW=sqrt(dt)*randn(1,N); %array of BM increments
W=cumsum(dW);

lambda=2;
sigma=1;
Xzero=1; %given X(0)=1

%Exact value
Xtrue=Xzero-lambda*[dt:dt:T]+sigma*W;
figure
plot([0:dt:T],[Xzero,Xtrue],'m-')
hold on

% Euler-Maryama
R=4;
Dt=R*dt;
L=N/R;
Xem=zeros(1,L); %preallocating for efficieny
Xtemp=Xzero;

for j=1:L
Winc=sum(dW(R*(j-1)+1:R*j));
Xtemp=Xtemp-lambda*Xtemp*Dt+sigma*Winc;
Xem(j)=Xtemp;
end

plot([0:Dt:T],[Xzero,Xem],'r--*')
hold off
title('Ornstein -Uhlenbeck SDE Path')
legend('Exact','Euler-Maruyama')

%% TASK 5
%Mean Reversion SDE

% NOT SURE JE HOISE NAKI

clc
clear all
randn('state',100)
T=1;
N=2^8;

dt=T/N;
dW=sqrt(dt)*randn(1,N); %array of BM increments

lamda=2;
sigma=1;
Xzero=1; %given X(0)=1

% Euler-Maruyama
R=4;
Dt=R*dt;
L=N/R;
Xem=zeros(1,L);
Xtemp=Xzero;
Xbar=3;

for j=1:L
Winc=sum(dW(R*(j-1)+1:R*j));
Xtemp=Xtemp-lamda*(Xtemp-Xbar)*Dt+sigma*sqrt(Xtemp)*Winc;
Xem(j)=Xtemp;
end
figure
plot([0:Dt:T],[Xzero,Xem],'r-*')
title('Mean Reversion with square root SDE Path')
legend('Euler-Maruyama')

%% TASK 6
% Milstein's Higher Order

clc
clear all
randn('state',100)

T=1; N=2^8; dt=T/N;


dW=sqrt(dt)*randn(1,N);
W=cumsum(dW);
mu=2;
sigma=1;
Xzero=1;

%Exact value:
Xtrue=Xzero*exp((mu-0.5*sigma^2)*([dt:dt:T])+sigma*W);
figure
plot([0:dt:T],[Xzero,Xtrue],'m-')
hold on

%Euler-Maruyama
R=4;
Dt=R*dt;
L=N/R;
XMM=zeros(1,L);
Xtemp=Xzero;

% f(x)=mu*X and g(x)=sigma*X and g'(x)=sigma

for j=1:L
Winc=sum(dW(R*(j-1)+1:R*j));
Xtemp=Xtemp+mu*Xtemp*Dt+sigma*Xtemp*Winc+(1/2)*sigma^2*Xtemp*(Winc^2 -Dt);
XMM(j)=Xtemp;
end

plot([0:Dt:T],[Xzero,XMM],'r--*')
hold on

% Comparing with EM
Xem=zeros(1,L);
Xtemp=Xzero;
for j=1:L
Winc=sum(dW(R*(j-1)+1:R*j));
Xtemp=Xtemp+mu*Xtemp*Dt+sigma*Xtemp*Winc;
Xem(j)=Xtemp;
end

plot([0:Dt:T],[Xzero,Xem],'k--')
hold off

title('GBM path')
legend('Exact','Milstein higher order','Euler Maruyama')

er1=abs(XMM(end)-Xtrue(end));
er2=abs(Xem(end)-Xtrue(end));

if er1<er2
disp('Milstein method gives more accurate result than EM method')
else
disp('EM method gives more accurate result than Milstein method')
end

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