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Simulating Stochastic Diffusion Processes and Processes with “Market” Time
National University of Kyiv-Mohyla Academy, Ukraine .
National University of Kyiv-Mohyla Academy, Ukraine .ORCID iD: 0000-0002-7652-8157
2020 (English)In: Mohyla Mathematical Journal, ISSN 2617-7080, Vol. 3, p. 25-30Article in journal (Refereed) Published
Abstract [en]

The paper focuses on modelling, simulation techniques and numerical methods concerned stochastic processes in subject such as financial mathematics and financial engineering. The main result of this work is simulation of a stochastic process with new market active time using Monte Carlo techniques.The processes with market time is a new vision of how stock price behavior can be modeled so that the nature of the process is more real. The iterative scheme for computer modelling of this process was proposed. It includes the modeling of diffusion processes with a given marginal inverse gamma distribution. Graphs of simulation of the Ornstein-Uhlenbeck random walk for different parameters, a simulation of the diffusion process with a gamma-inverse distribution and simulation of the process with market active time are presented.To simulate stochastic processes, an iterative scheme was used:

xk+1 = xk + a(xk, tk) ∆t + b(xk, tk) √ (∆t) εk,,

where εk each time a new generation with a normal random number distribution.

Next, the tools of programming languages for generating random numbers (evenly distributed, normally distributed) are investigated. Simulation (simulation) of stochastic diffusion processes is carried out; calculation errors and acceleration of convergence are calculated, Euler and Milstein schemes. At the next stage, diffusion processes with a given distribution function, namely with an inverse gamma distribution, were modelled. The final stage was the modelling of stock prices with a new "market" time, the growth of which is a diffusion process with inverse gamma distribution. In the proposed iterative scheme of stock prices, we use the modelling of market time gains as diffusion processes with a given marginal gamma-inverse distribution.The errors of calculations are evaluated using the Milstein scheme. The programmed model can be used to predict future values of time series and for option pricing.

Place, publisher, year, edition, pages
National University of Kyiv-Mohyla Academy , 2020. Vol. 3, p. 25-30
Keywords [en]
simulating of stochastic processes, computer modelling, diffusion models, processes with fractal “market” time
National Category
Mathematics
Identifiers
URN: urn:nbn:se:oru:diva-105051DOI: 10.18523/2617-70803202025-30OAI: oai:DiVA.org:oru-105051DiVA, id: diva2:1744221
Available from: 2023-03-17 Created: 2023-03-17 Last updated: 2023-03-17Bibliographically approved

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Shchestyuk, Nataliya

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