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    A6 Solution

    Uploaded by

    Mickey Wong
    B(s) + B(t) is normally distributed with mean 0 and variance 3s + t. The probability that a Brownian motion starting at x ever reaches 0 is 1. The expected time for this to occur is infinite. The probability that the maximum of a Brownian motion over the interval [t1, t2] exceeds the level x can be calculated by conditioning on the value of the Brownian motion at time t1. The joint density of a Brownian motion X(s) and X(t) at times s and t, where s < t, is normally distributed with mean μs, μ(t-s) and variance σ2s, σ2(

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    A6 Solution

    Uploaded by

    Mickey Wong
    10 views2 pages
    B(s) + B(t) is normally distributed with mean 0 and variance 3s + t. The probability that a Brownian motion starting at x ever reaches 0 is 1. The expected time for this to occur is infinite. The probability that the maximum of a Brownian motion over the interval [t1, t2] exceeds the level x can be calculated by conditioning on the value of the Brownian motion at time t1. The joint density of a Brownian motion X(s) and X(t) at times s and t, where s < t, is normally distributed with mean μs, μ(t-s) and variance σ2s, σ2(

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    © © All Rights Reserved

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    B(s) + B(t) is normally distributed with mean 0 and variance 3s + t. The probability that a Brownian motion starting at x ever reaches 0 is 1. The expected time for this to occur is infinite. The probability that the maximum of a Brownian motion over the interval [t1, t2] exceeds the level x can be calculated by conditioning on the value of the Brownian motion at time t1. The joint density of a Brownian motion X(s) and X(t) at times s and t, where s < t, is normally distributed with mean μs, μ(t-s) and variance σ2s, σ2(

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    10 views2 pages

    A6 Solution

    Uploaded by

    Mickey Wong
    B(s) + B(t) is normally distributed with mean 0 and variance 3s + t. The probability that a Brownian motion starting at x ever reaches 0 is 1. The expected time for this to occur is infinite. The probability that the maximum of a Brownian motion over the interval [t1, t2] exceeds the level x can be calculated by conditioning on the value of the Brownian motion at time t1. The joint density of a Brownian motion X(s) and X(t) at times s and t, where s < t, is normally distributed with mean μs, μ(t-s) and variance σ2s, σ2(

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    Assignment 6 Solutions

    1. B(s) + B(t) = 2B(s) + B(t) − B(s). Now 2B(s) is normal with mean 0 and variance 4s and
    B(t) − B(s) is normal with mean 0 and variance t − s. As B(s) and B(t) − B(s) are independent,
    it follows that B(s) + B(t) is normal with mean 0 and variance 4s + t − s = 3s + t.

    2. (a)

    P (Ta < ∞) = lim P {Ta ≤ t}


    t→∞
    ∫ ∞
    2
    e−y /2 dy
    2
    = √
    2r 0
    = 2P {N (0, 1) > 0} = 1.

    Another view is like this,

    P (Tx ≤ t) = 2P (B(t) > x)


    ∫ ∞
    2 −y 2
    = √ e 2 dy
    2π √xt
    √
    = 2(1 − Φ(x/ t)), t ≥ 0

    taking the limit as t → ∞ yields P (Tx < ∞) = 2(1 − Φ(0)) = 1.


    (b)
    ∫ ∞
    E[Ta ] = P {Ta > t} dt
    0

    ∫ √x −y2
    To this end, P (Tx > t) = 1 − P (Tx ≤ t) = √22π 0 t e 2 dy . Since the constant factor √22π plays
    no role in wether the integrated tail is infinite or finite, we leave it out for simplicity. It thus
    suffices to show that ∫ ∫ x ∞ √
    −y 2
    t
    e 2 dy dt = ∞
    0 0
    changing the order of integration, we re-write as
    ∫ ∞∫ x2 ∫ ∞
    y2 −y 2
    2 1 −y2
    e 2 dt dy = x e 2 dy
    0 0 0 y2
    ∫ 1
    1 −y2
    ≥ x 2
    2
    e 2 dy
    0 y
    ∫ 1
    1
    ≥ x2 e−1/2 d
    2 y
    0 y
    = ∞
    −y 2
    the second inequality is due to the fact that the decreasing function e 2 is minimized over the
    interval (0, 1] at the end point y = 1.

    1
    3. Let M = {maxt1 ≤s≤t2 X(s) > x}. Condition on X(t1 ) to obtain
    ∫ ∞
    1
    e−y /2t1 dy
    2
    P (M ) = P (M |X(t1 ) = y) √
    −∞ 2πt1

    Now, use that


    P (M |X(t1 ) = y) = 1, y ≥ x
    and, for y < x,

    P (M |X(t1 ) = y) = P ( max X(s) > x − y)


    0<s<t2 −t1
    = 2P {X(t2 − t1 ) > x − y}

    4. Let X = X(s) and Y = X(t)−X(s). X and Y are independent r.v.’s. X has normal distribution
    with mean µs and variance σ 2 s. Y has normal distribution with mean µ(t − s) and variance
    σ 2 (t − s). So, the joint density function of (X, Y ) is
    2
    1 (x−µs)2 1 −
    (y−µ(t−s))
    fX,Y (x, y) = √ exp− 2σ2 s ∗ √ exp 2σ2 (t−s)
    2πσ 2 s 2πσ 2 (t − s)
    2 (y−µ(t−s))2
    1 −
    (x−µs)
    −
    = √ exp 2σ2 s 2σ 2 (t−s) (0.1)
    2πσ 2 s(t − s)

    Consider the transformation (x(s), x(t)) = h(x, y) = (x, x+y). We have that |Jh−1 (x(s), x(t))| =
    1, then,

    (X(s), X(t)) = (X, Y )

    The joint density of (X(s), X(t)) is


    2 ((x(t)−x(s))−µ(t−s))2
    1 −
    (x(s)−µs)
    −
    fX(s),X(t) (x(s), x(t)) = √ exp 2σ 2 s 2σ 2 (t−s) (0.2)
    2πσ s(t − s)
    2

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