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I had been working on algorithm which uses the Hurst Exponent. Once i random walk simulation on matlab, x = cumsum(randm(1000,1)), I was able to get a hurst value close to 0.5.

To analyze the use of Hurst Exponent in mean aversion or mean reversion, may i know what are the equation models that i can used to run Monte Carlo simulations?

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1 Answer 1

The corresponding process would be fractional brownian motion (see here)

It is parametrized by the Hurst Exponent.

On the referenced site you find a link to some matlab code for simulating realizations of fractional BM.

If you want to see some fractional Gaussian Noise in action (Matlab) you can do so here.

Further more you might want to look into ARFIMA processes...

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Thank you for your reply. I was thinking more of a simulated equation, ARMA model that gives a hurst exponent of 0.7 and above, and another ARMA model that gives a hurst exponent of 0.3 and lower. Sorry for not being clear. –  Ice Mar 19 '14 at 8:27
I edited my answer. –  vanguard2k Mar 19 '14 at 12:05

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