This is because you use h in your for loop making it a single numerical value (=n). Replace h in the for loop with another name like i and that should work:
I guess what you want to do is use the values of h ? Then you will have to do that :
Iterating h for 2 to n was not taking the values in h vectors, but just replacing h with values for 2 to n. You have to iterate i and then use h(i)
for i = 2:n
%W1(h(i)) = I * (.5 * A1 * [W1(h-1); W2(h-1)] + .5 * C1 * U);
%W2(h(i)) = J * (.5 * A1 * [W1(h-1); W2(h-1)] + .5 * C1 * U);
indplus = indpositive(h(i));
W = (.5 * A1 * W +(indplus+.5*(1-indplus)) * C1 * U);
covariance = [covariance, K * W];
end
