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**Superclasses: **

Stochastic Differential Equation (SDE) model from Drift and Diffusion components

The `sdeddo`

constructor
creates and displays `sdeddo`

objects, instantiated
with objects of class `drift`

and `diffusion`

. These restricted `sdeddo`

objects
contain the input `drift`

and `diffusion`

objects;
therefore, you can directly access their displayed parameters.

This abstraction also generalizes the notion of drift and diffusion-rate
objects as functions that `sdeddo`

evaluates for
specific values of time *t* and state *X _{t}*.
Like

`sde`

objects, `sdeddo`

objects
allow you to simulate sample paths of `NVARS`

state
variables driven by `NBROWNS`

Brownian motion sources
of risk over `NPERIODS`

consecutive observation periods,
approximating continuous-time stochastic processes.The `sdeddo`

object enables you to simulate
any vector-valued SDE of the form:

$$d{X}_{t}=F(t,{X}_{t})dt+G(t,{X}_{t})d{W}_{t}$$

*X*is an_{t}`NVARS`

-by-`1`

state vector of process variables.*dW*is an_{t}`NBROWNS`

-by-`1`

Brownian motion vector.*F*is an`NVARS`

-by-`1`

vector-valued drift-rate function.*G*is an`NVARS`

-by-`NBROWNS`

matrix-valued diffusion-rate function.

`SDE = sdeddo(DriftRate,DiffusionRate)`

constructs
a default `sdeddo`

object.

`SDE = sdeddo(DriftRate,DiffusionRate,`

constructs
a `Name,Value`

)`sdeddo`

object with additional options specified
by one or more `Name,Value`

pair arguments.

`Name`

is a property name and `Value`

is
its corresponding value. `Name`

must appear inside
single quotes (`''`

). You can specify several name-value
pair arguments in any order as `Name1,Value1,…,NameN,ValueN`

.

For more information on constructing a `sdeddo`

object,
see `sdeddo`

.

The following figure illustrates the inheritance relationships among SDE classes.

For more information, see SDE Class Hierarchy.

Value. To learn how value classes affect copy operations, see Copying Objects (MATLAB).

When you specify the required input parameters as arrays, they are associated with a specific parametric form. By contrast, when you specify either required input parameter as a function, you can customize virtually any specification.

Accessing the output parameters with no inputs simply returns the original input specification. Thus, when you invoke these parameters with no inputs, they behave like simple properties and allow you to test the data type (double vs. function, or equivalently, static vs. dynamic) of the original input specification. This is useful for validating and designing methods.

When you invoke these parameters with inputs, they behave like
functions, giving the impression of dynamic behavior. The parameters
accept the observation time *t* and a state vector *X _{t}*,
and return an array of appropriate dimension. Even if you originally
specified an input as an array,

`sdeddo`

treats it
as a static function of time and state, by that means guaranteeing
that all parameters are accessible by the same interface.Ait-Sahalia, Y., *“Testing Continuous-Time
Models of the Spot Interest Rate” *, The Review
of Financial Studies, Spring 1996, Vol. 9, No. 2, pp. 385–426.

Ait-Sahalia, Y., *“Transition Densities for
Interest Rate and Other Nonlinear Diffusions” *,
The Journal of Finance, Vol. 54, No. 4, August 1999.

Glasserman, P., *Monte Carlo Methods in Financial
Engineering*, New York: Springer-Verlag, 2004.

Hull, J. C., *Options, Futures, and Other Derivatives*,
5th ed. Englewood Cliffs, NJ: Prentice Hall, 2002.

Johnson, N. L., S. Kotz, and N. Balakrishnan, *Continuous
Univariate Distributions*, Vol. 2, 2nd ed. New York: John
Wiley & Sons, 1995.

Shreve, S. E., *Stochastic Calculus for Finance II:
Continuous-Time Models*, New York: Springer-Verlag, 2004.

`diffusion`

| `drift`

| `interpolate`

| `sdeld`

| `simByEuler`

| `simulate`

- Representing Market Models Using SDEDDO Objects
- Representing Market Models Using SDE Objects
- Simulating Equity Prices
- Simulating Interest Rates
- Stratified Sampling
- Pricing American Basket Options by Monte Carlo Simulation
- Base SDE Models
- Drift and Diffusion Models
- Linear Drift Models
- Parametric Models
- Class Attributes (MATLAB)
- Property Attributes (MATLAB)
- SDEs
- SDE Models
- SDE Class Hierarchy
- Performance Considerations

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