ornstein_uhlenbeck

ornstein_uhlenbeck, an Octave code which approximates solutions of the Ornstein-Uhlenbeck stochastic differential equation (SDE) using the Euler method and the Euler-Maruyama method.

The Ornstein-Uhlenbeck stochastic differential equation has the form:

        dx(t) = theta * ( mu - x(t) ) dt + sigma dW,   
        x(0) = x0.
      

• theta is a nonnegative decay rate;
• mu is a mean value for x;
• sigma measures the strength of the stochastic perturbation.

The starting value x0 represents a deviation from the mean value mu. The decay rate theta determines how fast x(t) will move back towards its mean value. The coefficient sigma determines the relative magnitude of stochastic perturbations.

In general, the solution starts at x0 and over time moves towards the value mu, but experiences random "wobbles" whose size is determined by sigma. Increasing theta makes the solution move towards the mean faster.

Licensing:

The computer code and data files described and made available on this web page are distributed under the MIT license

Languages:

ornstein_uhlenbeck is available in a C version and a C++ version and a Fortran90 version and a MATLAB version and an Octave version.

Related Data and Programs:

ornstein_uhlenbeck_test

Reference:

1. Desmond Higham,
   An Algorithmic Introduction to Numerical Simulation of Stochastic Differential Equations,
   SIAM Review,
   Volume 43, Number 3, September 2001, pages 525-546.

Source Code:

• ornstein_uhlenbeck_euler.m, uses the Euler method to approximate a solution to the Ornstein-Uhlenbeck equation.
• ornstein_uhlenbeck_euler_maruyama.m, uses the Euler-Maruyama method to approximate a solution to the Ornstein-Uhlenbeck equation.