Questions on the calculus of stochastic processes, or processes that have a random component.

learn more… | top users | synonyms

1
vote
1answer
75 views

Integral on interval $[-\infty,W_t]$, $W_t$ is Brownian motion

Basicaly I have an expectation of an integral on the interval which contains Brownian motion and it look like this. $$ E\left[e^{W_t}\cdot\int_{-\infty}^{W_t} e^{-z^2}dz\right] $$ $W_t$ is Brownian ...
1
vote
1answer
207 views

What is the quadratic variation of compensated poisson process? [closed]

I want to know what is the quadratic variation of a compensated poisson process. $$[N-\lambda t, N - \lambda t]_t = \sum_{0 \leq s \leq t} (\Delta (N_s - \lambda s))^2 = ? $$ This is as far as I ...
2
votes
1answer
120 views

A good book on Brownian motion

Can you suggest me a good book on Brownian motion, where it is introduced as a limit of measures on polish spaces like $C[0,1]$ and subsequently stochastic calculus is discussed?
2
votes
0answers
54 views

Ito's formula applied to a stochastic function

The Ito's formula stated in my book is in the form $F(t,X_t)$, where $F: \mathbb{R}^{d+1} \rightarrow \mathbb{R}$ is a $d+1-$dimensional deterministic $C^{1,2}$ function and $(X_t)_{t \geq0}$ is a ...
3
votes
0answers
80 views

Sufficient condition for martingale property

Let $(\Omega,\mathcal{F},(\mathcal{F}_t)_{t \geq 0},\mathbb{P})$ be a filtered probability space and $M=(M_t)_{t\geq 0}$ an $\mathcal{F}_t$-adapted stochastic process. If $$ \forall t<s, \ ...
1
vote
2answers
53 views

How can I solve this expected value?

Good evening, how can I solve this expected value? $$ E \Bigl[ B_1 \int_0^{x} B_u du\ \Bigr] $$ where $B_t$ is a standard Brownian Motion and x > 0.
0
votes
0answers
22 views

Stratonovich integral of Wienere process [duplicate]

I need an help with the following exercise. Let $(W_t)_{t\geq 0}$ a Wiener process on $(\Omega, \mathcal E, \mathbb P)$ and let $I=[0,T]$ be an interval. We want to prove that the Stratonovich ...
1
vote
2answers
131 views

Stochastic Calculus - Ito decomposition

I have got one question about Ito decomposition. Suppose $W_t$ is a Brownian Motion: $X_t = W_t^2 + \int_0^t(W_t^3-1)du$ How to get $dX_t$? I am quited comfused by the integral. Should we calculate ...
2
votes
2answers
206 views

Product of stochastic integral and brownian motion

I am trying to compute the following expectation: $$ M_T = \mathbb E\left[W_T\int_0^T\,t\,d W_t \right] $$ where $0<t<T$ and $W = (W_t)_{t\geq 0}$ is a standard Brownian Motion started at $0$. ...
5
votes
1answer
78 views

Show that $E[X_t^2]<\infty$

Show that $E[X_t^2]<\infty$, where $$ X_t=e^{3W_t-\frac{3t}{2}}-3e^{W_t-\frac{t}{2}}\underbrace{\int_0^te^{2W_s-s}ds}_{A_t},\quad. t\geq0, $$ where $t$ is a fixed number and $W_t$ is Brownian ...
1
vote
0answers
51 views

Proof that limit exists in $L^2$ sence

Proof that exists $L^2$ limit $$ \lim_{\varepsilon\downarrow 0} L(t,\varepsilon)=\lim_{\varepsilon\downarrow 0}\frac{1}{\varepsilon}\int_0^t\mathbf{1}\left(W_s\in(-\varepsilon,\varepsilon)\right)ds, ...
3
votes
1answer
110 views

Second derivative of a convex function in the Itō–Tanaka formula

This is the form of the Itō–Tanaka formula I have (Revuz and Yor): For $f$ a convex function and $X$ a continuous semimartingale, $$f(X_t)=f(X_0) ...
4
votes
1answer
102 views

Martingale with respect to a decreasing filtration

I am trying to solve problem 2.16 from the book "Continuous Martingales and Brownian Motion" by Revuz and Yor. There are two things that confuse me from the exercise so hopefully someone can shed some ...
1
vote
2answers
152 views

Using Markov Property in solving PDE/SDE

I am solving the PDE I used Feynman-Kac and eventually arrived at $F(t,x)$ $ = E[X_T^2|X_t = x]$ $ = E[(X_t \pm \sigma (W_T -W_t))^2|X_t = x]$ (iirc) where $W_t$ is standard Brownian motion and ...
1
vote
0answers
155 views

Girsanov theorem for Ito diffusion process

I am getting confused about some important point of Girsanov theorem used for diffusion process. Starting with the diffusion $$dX_t=a(X_t)dt+b(X_t)dW_t$$ where $W_t$ is a P-Brownian motion. One can ...
1
vote
0answers
184 views

The Derivation of the Ito-Wentzell Formula

Is there a good derivation of the Ito-Wentzell Formula which is a generalization of the Ito's Lemma? Here are some unsatisfactory references to the Ito-Wentzell Formula: ...
2
votes
1answer
139 views

How to combine two conditional exponential CDF's?

Suppose one has two machines (machine A and machine B) in sequence with time to machine break down exponentially distributed with rate parameters $\lambda_A$ and $\lambda_B$. Machine A and B have a ...
2
votes
1answer
90 views

Conditional expectation with disjoint $\sigma$-algebras

Let $(B^1,B^2)$ be independent Brownian motions with corresponding filtration $\mathcal{F}_t$. Let $\mathcal{F}^2_t$ be the filtration generated by $B^2$. How does one prove that for any $s<t$ and ...
1
vote
1answer
33 views

Applying Ito's formula to a complicated expression

I am faced with some (predictable) process $(r_t)$ and let $0 \leq t \leq T$. I am baffled with the issue of applying Ito's formula to the process $$ \bigg\{ \int_{t}^{T} G(s-t, r_t) \,ds \bigg\}_{t ...
0
votes
0answers
36 views

How can I solve $E[B^4_t B^3_t]$?

How can I solve the following expected value: $$ E[B^4_t B^3_t] $$ where $ B_t $ is a standard Brownian Motion.
0
votes
1answer
163 views

Fokker-Planck equation - find probability density function

I have problem from my course, that I can't solve. If anyone can do it and explain, would be great. Find the probability density function $f(x,t)$, of $X_t$ where {$X_t$} is a solution of stochastic ...
1
vote
1answer
82 views

probability of two successive random numbers has the same starting number

Question/problem(subtask b): What is the probability of two successive random numbers has the same starting number? What we do know is that a random number generator randomizes numbers of 6-digits ...
5
votes
1answer
161 views

Calculation of Radon–Nikodym derivative

Suppose the function $X \colon \mathbb{R} \longrightarrow \mathbb{R} \colon x \longmapsto X(x) : = x^2$. I want to calculate the Radon–Nikodym derivative $\frac{\text{d}\lambda_X}{\text{d}\lambda}$, ...
2
votes
1answer
74 views

Prove that the following process is a Geometric Brownian motion for every constant

Having some trouble understanding this problem: Given the dynamics of the geometric brownian motion $X_t$ where $(B_t)_{t\in\mathbf{R}_{+}}$ $$ dX_t = X_tdt+X_t dB_t,$$ $$X_0=1$$ for which value of ...
5
votes
1answer
264 views

How to compute $E[W_t^4]$, with $W_t$ being a standard Wiener process

I want to compute the fourth moment of a standard Wiener process: $E[W_t^4]$. My solution is not equal to the one in my textbook but I don't understand where I am wrong. I started by applying Ito's ...
0
votes
1answer
73 views

Show martingale space is a Banach space

Let $\mathcal{H}^1 = \{M \in \mathcal{M}, E[sup_{t\geq 0} |M_t|] < \infty\}$, where $\mathcal{M}$ is the space of right continuous with left limits martingales. Show that $\mathcal{H}^1$ is ...
1
vote
1answer
171 views

Expected Value of the exponential of a stochastic integral

What is the expected value of the following process: $$ e^{\int_0^t B_u\, du} $$ Thanks.
0
votes
2answers
41 views

Find the value of the real $\alpha$ for which exp($2B(t) - \alpha t$) is a martingale.

I tried to answer using the three conditions to be a martingale (measurability, integrability, and martingality), validating the integrability condition, which is $$ E |e^{2B(t) - \alpha t} | < ...
0
votes
1answer
168 views

Is $W^3(t)$ a martingale if $W(t)$ is a Brownian motion

Is $W^3(t)$ a martingale if $W(t)$ is a Brownian motion? The answer seems like no to me. Using Ito's lemma I can write $$W^3(t)=\frac{3}{2}W^2(t)+\int_0^t3W(u)dW(u)$$ The second piece on the LHS is an ...
1
vote
0answers
40 views

Deterministic integrals involving a Brownian motion [duplicate]

I am trying to work out the following two integrals involving a standard Brownian motion started at $W_0 = 0$. The first expression is bewildering me a bit, since it seems like somehow the Itô ...
0
votes
1answer
137 views

Prove directly from the definition of the Ito's integral

I am trying to solve the exercises from the book Stochastic differential equations -An Introduction with applications by Bernt Oksendal and I am stuck on 1 question. Prove directly from the ...
1
vote
0answers
39 views

Solve the stochastic differential equation

I have to solve the following SDE: $$dX_t=X_t dt+2W_tdW_t$$ Let $Y_t=X_t e^{-t}$. By Ito formula we have: $$dY_t=-X_te^{-t}dt+e^{-t}(X_t dt+2W_tdW_t)=2e^{-t}W_tdW_t$$ Thus ...
0
votes
0answers
116 views

Definition of Simple Predictable Process

I am reading Protter's book "Stochastic Integration and Differential Equations". He (page 51) defines $H$ to be a simple predictable processes if it has a representation ...
2
votes
1answer
92 views

Completeness of a statistic. Implication of equivalent probability classes [duplicate]

Let $\mathcal{P}'\subset \mathcal{P}$ be two equivalent classes of probability measures on a measure space $(\mathcal{X},\mathcal{B})$, e.g. $\mathcal{P}:=\{P_{\theta} : \theta \in \Theta\}$. Let $T$ ...
0
votes
0answers
35 views

Inverse Bessel Process

Is there any reference on this process? For example, analytical derivations for the hitting times, density, etc? Im studying local martingales and am interested in the density of hitting times for ...
1
vote
0answers
102 views

Deriving the definition of stochastic integrals with respect to Ito processes from first principles

When I first encountered the definition of integrals with respect to Ito processes (Shreve's Stochastic Calculus for Finance Vol II), I didn't think twice. However, I wanted to see if the definition ...
0
votes
1answer
19 views

What's the covariance of $B_t$ and $B_{t^2}$, where $B_t$ is the standard Brownian Motion?

What's the covariance of $B_t$ and $B_{t^2}$, where $B_t$ is the standard Brownian Motion? $B_t$ is the standard Brownian Motion, what's $\operatorname{Cov}(B_t,B_{t^2})$?
1
vote
1answer
193 views

What is the difference between “filtration for a Brownian motion” and “filtration generated by a Brownian motion”?

I'm reading Shreve's book "Stochastic Calculus for Finance: Vol II". In 5.3.1, after the Theorem 5.3.1 (Martingale representation, one dimension), Shreve explains: "The assumption that the filtration ...
1
vote
0answers
90 views

Probability of going to the origin in a random walk

Been given this as practice for my Stochastic Processes course. I'm fairly new to the concept, so I haven't been exposed to a general method. Any hints/tips for the following? A gambler plays a ...
0
votes
1answer
52 views

Malliavin Derivative

Motivation : We know that, if the randomness in the system is due to Brownian Motion then any contingent claim with mean zero can be written as Ito integral. (Of course, we need to have boundedness ...
1
vote
1answer
221 views

Expected value and variance of a stochastic process

Having trouble finding expected value and variance of a stochastic process defined by SDE: $dX_{t} = a X_{t} dt + b dB_{t}$ $X_0 = x$, $a$ and $b$ are constant values, $B_t$~$N(0,t)$ Thank you for ...
0
votes
1answer
41 views

How to identify the future distribution of a stochastic variable from its SDE

I would like to know some common practice to identify the future distribution of a random variable modelled by an arbitrary SDE. Would you study it empirically (like generating Monte-Carlo ...
1
vote
1answer
44 views

Find a process $f=f(t,W_t)$ such that another process is a martingale

Find a process $f=f(t,W_t)$ such that process: $$X_t=\exp(W_t^2-2tW_t^2)+\int_0^tf(s,W_s)ds$$ is a martingale. Justify the fact that $X_t$ is martingale. I think I should find a process such that ...
1
vote
1answer
76 views

A question on integration wr.t to a local martingale

In a lemma in my graduate level course on financial mathematics uses the fact that integral of a progressive portfolio process(which is almost surely lower bounded i.e it is admissible) $\theta_t$ ...
1
vote
1answer
50 views

Find conditional expectation of $\int_1^2W_t^2dt$ with respect to $F_1$

$$\mathbb{E}(\int_1^2W_t^2dt|F_1)=\int_1^2\mathbb{E}((W_t-W_1+W_1)^2|F_1)dt=\int_1^2\mathbb{E}((W_t-W_1)^2|F_1)dt+\int_1^2 2\mathbb{E}((W_t-W_1)W_1|F_1)dt+\int_1^2 ...
1
vote
2answers
53 views

Calculate conditional expectation of integral

I have to calculate $$\mathbb{E}\left(\int_1^2 (t^2W_t+t^3 )\,dt\mid F_1\right)$$ My attempt: $$\int_1^2 (t^2W_t+t^3 )\,dt=\int_1^2t^2W_t\,dt+\frac{15}{4}$$ Now I will focus on: ...
0
votes
1answer
44 views

partial derivative of $f(X(t),t)$ with respect to $t$

Suppose that $f(x,t) = x^2$. Clearly, $\frac{\partial f}{\partial t} = 0$. However, let us now consider $f(X(t),t) = X(t)^2$. The book I am reading claims that $\frac{\partial f}{\partial t}(X(t),t) ...
4
votes
0answers
86 views

Regarding proof of converse to Girsanovs theorem

This is regarding an argument from Arbitrage Theory by Thomas Björk - Theorem 11.6, but is attempted self contained. Consider a Wiener process W on probability space ...
0
votes
0answers
74 views

How to derive this step in a book called Brownian motion calculus?

How to derive the step which result in the magnitude of slope of the path in section 1.8.2? I know it is not the definition itself.
1
vote
1answer
53 views

Conditional likelihood of continuously-combounded returns

The simplest possible asset pricing model ist the geometric brownian motion for asset price. Here the price $S_t$ solve the familar $$dS_t = (\mu +0.5 \sigma^2)S_t \, dt + \sigma S_t \, ...