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Stoch. Anal.

exercises, December 12, 2014


1. Calculate the following conditional expectations:
Z t  Z t 
E (Bs | Bt ) , 0 s < t, E Bs ds | Bt , E s dBs | Bt .
0 0

Rt
2. Let f : [0, T ] R be a continuous function. Let Xt := 0
f (s) dBs , t [0, T ]. Calculate Cov(BT , XT ).

3. Let
M (t) := sup B(s) (t 0), Tb := inf{t 0 : B(t) = b} (b > 0).
0st

(a) Denote by N a r.v. with standard normal distribution, C a r.v. with a standard Cauchy distribution,
d
(B(t))
e t0 another independent standard Brownian motion. Denote by X = Y the fact that that the
r.v.s X and Y have the same distribution. Show that
d d d d d
M (t) = tM (1), M (1) = |N |, T1 = 1/M 2 (1), B(T e b) = bC, M (1) B(1) = |N |

(b) Show that


d d
Tb = b2 T1 , (a + b)2 T1 = a2 T1 + b2 T10 (a, b > 0)
where T1 and T10 are i.i.d.
4. Let (Xt ) be an It-diffusion with drift coefficient (x) = 21 sin x cos x, diffusion coefficient (x) = cos x
and initial value X0 = x0 (0, 4 ). Let Tb = inf{t 0 : Xt = b}. Calculate Px0 (T 4 < T0 ).
5. Why does the SDE
1
q
dXt = Xt dt + 1 + Xt2 dBt , X 0 = x0 R
2
have exactly one strong solution? Solve the SDE. Hint: Xt = f (Bt ) for some f C 2 (R).

6. Stochastic Logistic Equation. The SDE

dXt = rXt (K Xt ) dt + Xt dBt , X0 = x0 > 0, K, r, R+

is used to model random population growth is an environment with finite capacity. For example Xt can
measure the amount of individuals that have the flu at time t. Solve the SDE.

7. In math. finance, the Cox-Ingersoll-Ross (CIR) process is used to model the evolution of interest rates:
p
dRt = a (b Rt )dt + Rt dBt , a, b, R+ , Rt 0

Calculate the stationary distribution of the CIR process. Hint: it is a famous distribution.
8. We consider the unique strong solution (Xt ) of dXt = (Xt )dt + (Xt )dBt , where : R R and
: R R+ are Lipschitz-continuous. We say that (Xt ) is recurrent if lim inf t Xt = and
lim supt Xt = +. We say that (Xt ) is positively recurrent if it has a stationary distribution. We
have seen in class that positive recurrence is equivalent to the condition
Z  Z x 
1 (y)
2
exp 2 2
dy dx < +, (1)
(x) 0 (y)

and that recurrence is equivalent to the condition


Z x  Z x 
(y)
lim f (x) = , f (x) = g(y)dy, g(x) = exp 2 dy . (2)
x 0 0 2 (y)

It is intuitively obvious that a positively recurrent process is recurrent. Show that indeed (1) implies (2).