A stochastic, or random, process describes the correlation or evolution of random events. It is used to model stock market fluctuations and electronic/audio-visual/biological signals. Among the most well-known stochastic processes are random walks and Brownian motion.

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56 views

Stochastic Process

I would like to know if anyone here could help me with this exercise. Y(t) = X(t +d) - X(t), where X(t) is a Gaussian Stochastic process. (A) Calculate the mean and covariance of Y(t) (B) Calculate ...
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66 views

Entry time and hitting time

Hi I have a question about entry time and hitting time. Let $(\Omega, \mathcal{F},P)$ be a probability space and $(X_{t})_{t \in[0,\infty)}$ be a $\mathbb{R}$-valued stochastic process on $(\Omega, \...
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80 views

Convergence in distribution of stochastic equation solutions

I'm studying from Kurtz's book "Markov Processes Characterization and convergence" and I have a question about the convergence of processes in $\mathbb{Z}^d$ that are solution of some equation. (see ...
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1answer
83 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 ...
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1answer
69 views

Suppose $X$ and $Y$ are independent exponential random variables with the same mean $µ = 1/2$. Let ($Z,W) := (X,X +Y)$

Suppose $X$ and $Y$ are independent exponential random variables with the same mean $µ = 1/2$. Let ($Z,W) := (X,X +Y)$ i) Find the regions where the joint pdf of $(Z,W)$ is positive. ii) Find the ...
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1answer
98 views

Meaning of $\mathcal A_{\tau}$ for stopping time $\tau$.

Let $(X_n)$ be a stochastic process, adapted to a filtration $\mathcal A_n$, and let $\tau$ be a stopping time, then $$ \mathcal A_{\tau} := \left\{ A \in \sigma\left(\bigcup_n A_n\right) : A \cap \{ ...
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1answer
322 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.
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2answers
367 views

Brownian motion: first-hitting-time with double barrier [closed]

Let $(B_t)_t$ be a standard ($B_0=0$) Brownian motion , and $$ T_{a,b} = \inf\{t>0 : B_t \not\in(a,b)\} $$ where $a<0<b$. What is the expected first-passage time $\mathbf{E}[T_{a,b}]$?
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42 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} | < \...
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1answer
61 views

What's the meaning of the state space with locally compact topological space?

I have encountered a statement in one paper describing the continuous-time controlled Markov chain with space state which is locally compact topological space. What does this mean? In my previous ...
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48 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 ...
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1answer
62 views

Pricing a riskless asset in the Black & Scholes market

Consider a Black&Scholes Market where a risky asset evolves according to: $$\frac{dS_t}{S_t}=\mu dt+\sigma dB_t$$ $$S_o=s$$ Riskless asset is associated with risk free rate r. I want to represent ...
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180 views

Expected value and Variance of a stochastic time integral of a deterministic variable (Standard Brownian motion)

Given a Standard Brownian motion $(B_t)_{t\in\mathbf{R}_{+}}$, define: $$E(e^{\int_0^tudB_u})=?$$ $$ Var(e^{\int_0^tudB_u})=?$$ I started off assuming (!) that $X_t=$ $\int_0^tudB_u \sim N(\mu,\...
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17 views

Need a little bit of guidance with stochastic processes

Let $X(t) = \begin{bmatrix} cos(t) + N(t)\\ sin(t) + S(t)\\ \end{bmatrix} $ (where $N(t)$ is a gaussian process and S(t) is a Poisson's process). Let $Y(t)=\begin{bmatrix}...
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116 views

Expected value of a brownian motion times the deterministic integral of a brownian motion

Given a Standard Brownian motion $(B_t)_{t\in\mathbf{R}_{+}}$, $E (B_t \int_0^tB_s^3ds)$ = ? I try to turn the expected value into a double integral by rewriting the $B_t$ term as 1) $E(\int_0^t ...
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0answers
47 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 $$Y_t=Y_0+2\int_0^te^{...
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176 views

Expected value of an exponential of a gaussian random variable

$$E (Y_t)=E(e^{X_t}) = E(e^{N(X_0e^{at};\frac{b^2}{2a}(e^{2at}-1)}) =\text{ ?}$$ Knowning that $$X_t \sim N\left[X_0e^{at};\frac{b^2}{2a}(e^{2at}-1)\right]$$ $$X_t= aX_t \, dt+b \, dB_t$$ The ...
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2answers
168 views

Proof that there exists a non-negative eigenvector corresponding to eigenvalue 1 of stochastic matrix

Let $P \in [0,1]^{n \times n}$ be a [irreducible or reducible] stochastic matrix where its rows sum to 1 i.e. $$ \forall i \in \{ 1 , \dots n \} \quad \sum_{j=1}^{n} P_{ij} = 1 $$ It is easy to show ...
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178 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 $$H_t=H_0\mathbf1_{\{0\}}+\...
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36 views

About moments in a quantile processes

Let $q_{n}(t)$ be the $nth$ quantile processes ($t\in (0,1)$) based on the distribution F: $$q_{n}(t) = \{\sqrt{n}[F^{-1}_{n}(t)-F^{-1}(t)]\}.$$ In this case, $F^{-1}$ is the (generalized) inverse of $...
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2answers
57 views

How to efficiently simulate successes of several trials if probabilities are inhomogeneous

If I'm doing a simulation with $n$ trials, each with probability $p$, a quick way to select the successful trials is to choose a binomially distributed random number. Then randomly choose that many ...
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60 views

Distribution of $(\sup_{0\leq s\leq t} W_s -W_t)$

I am interest in the law of the $(\sup_{0\leq s\leq t} W_s -W_t)$ where $W$ is a standard brownian motion. I know that $M_t:=\sup_{0\leq s\leq t} W_s \overset{\mathcal L}{=} |W_t |$ so its density ...
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1answer
139 views

Proving that Doob's martingale is a martingale

I'm working on my first ever proof that a stochastic process is a martingale, and I'm a bit confused. Is there a "standard machine" for these proofs? To be more specific, I am trying to show that if ...
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43 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 ...
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77 views

Distribution of points in a homogeneous PPP

PPP holds some important properties. However, my question is whether the positions of the points in a homogeneous PPP are independent? Equivalently, are the points in a homogeneous PPP distributed ...
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42 views

Question about Lebesgue Dominated Convergence Theorem involving a Markov Time / Stopping Time

I am trying to understand the proof of the following lemma: Let $W$ be an arbitrary random variable satisfying $\mathbb{E}[|W|] < \infty$, and let $T$ be a Markov time (or stopping time) for which $...
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1answer
123 views

Couple/Compare two stochastic processes and prove an intuitive proposition

Consider a stochastic process (denoted $X$) $X_0, X_1, X_2, \ldots$ (not necessarily a Markov Chain) over state space $\{0, 1, \cdots, n \}$. The transition probabilities are ($n$ is the sink state) ...
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109 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 ...
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50 views

Stability of non-autonomous stochastic differential equation

I'm looking for a good reference or insight to under what conditions can I prove stability (or instability) for the following general n-dimensional non-autonomous stochastic differential equation: $...
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1answer
69 views

Product topology and uniform topology on C[0,T]

Is the product topology on $\mathbb{R}^{[0,T]}$ restricted to $C[0,T]$ (T finite) the same as the topology induced by the uniform norm on $C[0,T]$? I am curious because I saw a claim on wiki saying ...
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1answer
298 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 ...
3
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1answer
145 views

Natural Filtration and Sigma-Field Generated by path function

Suppose we have a continuous real-valued stochastic process $X=(X_t;t\geq 0)$ defined on a probability space $(\Omega,F,P)$. Usually one defined the filtration to be $F_t=\sigma(X_s;s\leq t)$. But on ...
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102 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 (...
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1answer
34 views

Covariance of time series.

Let $\varepsilon_n \sim \textrm{WN}(0,\tau^2) $ be the white noise. Calculate $\textrm{Cov}(X_n, X_{n+k})$, where $X_n = \varepsilon_n(\varepsilon_n - \varepsilon_{n-1})$. Can anybody help? I've just ...
2
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0answers
34 views

Convergence of sum of exp. decaying pdf // When does L^2 convergence imply a.s. convergence?

The problem: Let $X_t^i$ $(i \in Z)$ be integer valued random variables on the same probability space. Let $m: Z \rightarrow R $ be a symmetric probability density on the integers which has ...
2
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0answers
16 views

Reference request random time changes representations and weak convergence

I was reading the Kurtz's book 'Markov Processes: Characterization and Convergence' and I need to prove a similar theorem as theorem 1.5 on chapter 6 of that book, that basically states that if $Y$ is ...
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1answer
98 views

Martingale property of Brownian motion with resprect to a different filtration

Let $W$ be a Brownian motion on $(\Omega,\mathcal F,\mathbb P)$ and let $N$ be a Poisson process on the same probability space. Denote by $\mathbb F$ the filtration that is generated by $(W,N)$. Now ...
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1answer
34 views

What platform is best for simulating a stochastic process on a graph/network?

I'm simulating a dynamic process which was so far done only on a lattice, and Matlab was quite sufficient for that. However, I can't seem to find a convenient way to model such a process on a graph ...
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1answer
202 views

Is square of Wiener process an orthogonal process?

I'm trying to prove: Let $t_1 < t_2 \leq t_3 < t_4$ and $(X)_t$ is the square of Wiener process. Then $E(X_{t_2} - X_{t_1})(X_{t_4}- X_{t_3}) \neq 0.$ Progress Maybe the fact $E(X_{t_2} - X_{...
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1answer
403 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 ...
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1answer
74 views

Solving inverse problem related to Iterated function systems?

I generated a Barnsley's fern fractal using details in this link with the aid of MATLAB. My doubts are as follows : How do we justify the shape generated from those equations? Is it possible to ...
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2answers
462 views

Law of large numbers for Brownian Motion (Direct proof using L2-convergence)

In “Brownian Motion” by Schilling and Partzsc, they give a HINT to prove the Law of Large Numbers for Brownian Motion (not in their solutions, fyi) by (1) Noting that $\left|\frac{B_{t}}{t}\right|\...
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1answer
215 views

Probability- Coin Flipping Game

If you play a game where you flip a coin if it lands heads you win £1 and tails you lose £1.If you start with $£K$ what is the probability that you are bankrupt after $n$ games? MY ATTEMPT I have ...
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1answer
52 views

Fatou, Dominated Convergence, etc. for nets (in relation to stochastic processes)

In textbooks on Stochastic Processes, they always seem to assume that Fatou and DCT etc. can be applied to continuous-time stochastic processes $(X_{t})_{t\in\mathbb{R}_{+}}$. But in every book on ...
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52 views

Relation between a.s. and L_{2} convergence

I'm working through a proof, where I need to establish that $X_{t}\overset{a.s.}{\longrightarrow}0$. All I know is that $\left|X_{t}\right|\leq\left|Y_{n}\right|+\left|Z_{n}\right|$ for $t\in[n,n+1)$, ...
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123 views

quadratic SDE solution

I have this SDE $dX_t=[a+bX_t+sX_t(1-X_t)]dt+\frac{1}{2}X_t(1-X_t)dW_t, \, X_0=0,$ where $a,b \in(0,1)$ and let's say that $s$ is a real constant (it's actually a function of $X$, but I think I can ...
3
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0answers
255 views

Donsker's Invariance Principle and Gambler's Ruin

Let $(S_{n})_{n\geq0}$ be a Random Walk (i.e. $S_{n}:=X_{1}+\cdots+X_{n}$, where $\mathbb{P}(X_{i}=1)=\mathbb{P}(X_{i}=-1)=1/2$). Define interpolated random walks $(S^{n}(t))_{t\in\left[0,1\right]}$ ...
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1answer
87 views

Conditional distribution on the unit circle and a square

Let (X,Y) be uniformly distributed over $B=\{(x,y) \in \mathbb{R}^2: x^2+y^2 \leq 1 \}$ resp. $Q=[-1,1]^2$. Now I want to calculate the conditional distributions and of Y given X=x. And then the ...
3
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1answer
100 views

Characterize the limit of an O-U process: $dX_t = -\tfrac{\mu}{\theta} X_t dt + \tfrac{\sigma}{\theta^{1/2}} dW_t$ as $\lim_{\theta \to 0}$.

Standard O-U Formulas: Take the Ornstein–Uhlenbeck process defined by the SDE $$ dX_t = -\frac{\mu}{\theta} X_t dt + \frac{\sigma}{\theta^{1/2}} dW_t $$ where $\mu > 0, \theta > 0, $ and $\...
1
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1answer
50 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 ...