HCMC 2014

Summer School in Statistics

Exercices on Martingales

1 Autoregressive Process.
Consider the stable autoregressive process

Xn+1 = Xn + n+1

where the unknown parameter || < 1 and the initial state X0 = 0. Assume that (n )
is a sequence of independent and identically distributed N (0, 2 ) random variables with
2 > 0. We estimate the unknown parameter by the least squares estimator
Pn
k=1 Xk Xk1
n = P
b
n1 2
.
k=0 Xk

1) Prove that
Mn
bn = 2
< M >n
where n n
X X
2 2
Mn = Xk1 k and < M >n = Xk1 .
k=1 k=1

2) Show the almost sure convergence

< M >n 4
lim = a.s.
n n 1 2

3) Deduce that bn converges to almost surely and establish the asymptotic normality
L
n(bn ) N (0, 1 2 ).

2 Stock Market.
The evolution of a stock market is given by the autoregressive process

Xn+1 = (1 + m)Xn + Xn n+1

where the initial value of the stock is given by X0 = x with x > 0, and (n ) is a sequence
of independent random variables sharing the same Rademacher R(1/2) distribution. The
unknown parameter m and are called the discount rate and the volatility of the stock,
respectively. They satisfy the inequality || < 1 + m. We estimate the discount rate m
by the least squares estimator
n
1 X (Xk Xk1 )
m
bn = .
n k=1 Xk1

1
 1) Prove by induction that, for all n > 0, Xn > 0.

2) Calculate the mean and the variance of Xn .

3) Show that, for all > 0, E[Xn+1 Xn |Fn ] = mXn .

4) Deduce, from the different values of m, that the process (Xn ) is a martingale,
submartingale, or supermartingale.

5) Show that
n
X
bn m =
m k .
n k=1

6) Prove that m
b n converges to m almost surely and establish the asymptotic normality
L
b n m) N (0, 2 ).
n(m

7) Study the almost sure convergence of the estimator of the volatility

n
b k1 Xk1 )2
1 X (Xk Xk1 m
bn2 =
2
.
n k=1 Xk1

3 Panarea.
Let a and b be two positive real numbers and let (Xn ) be the sequence defined, for all
n > 1, by Xn = na n where (n ) is a sequence of independent random variables sharing
the same uniform distribution on the interval [b, b]. Denote
n
X
Mn = Xk .
k=1

1) Calculate the mean, the variance and the moment of order 4 of the uniform distri-
bution on the interval [b, b].

2) Prove that (Mn ) is a square integrable martingale.

3) Calculate its increasing process < M >n and show the almost sure convergence

< M >n b2
lim = a.s.
n n2a+1 3(2a + 1)

4) Deduce the almost sure convergence

Mn
lim =0 a.s.
n n2a+1

5) Finally, prove the asymptotic normality

b2
 
Mn L
N 0, .
na n 3(2a + 1)

2
4 Polyas urn.
Let a, b, c be three positive integers. An urn contains a red and b white balls. We choose
a ball at random from the urn and we look at its color. Then, we replace the ball in the
urn and we add c new ball of the same color. This gives the new composition of the urn
at time 1. Then, we iterate the same procedure. After time n, one can find a + b + nc
balls inside the urn. Denote by Xn the number of red balls in the urn after time n and
Mn its proportion
Xn
Mn = .
a + b + nc

1) What are the possible values of the random variable Xn ?

2) Prove by induction that, for all n > 0,

Xn+1 = Xn + cn+1

where, for all n > 1, L(n+1 |Fn ) = B(pn ) with pn to be computed.

3) Deduce that
E[Xn+1 |Fn ] = (a + b + c(n + 1))Mn .

4) Show that (Mn ) is a martingale which converges almost surely and in L2 to a random
variable L.

5) In the particular case where a = b = c, prove by induction that the random variable
Xn is uniformly distributed on {a, 2a, . . . , (n + 1)a} and establish that the limit L
is uniformly distributed on the interval [0, 1].

5 Logarithmic convergences.
Let (Xn ) be a sequence of independent random variables with moments of order 4. Assume
that, for all n > 1, E[Xn ] = m, E[(Xn m)2 ] = 2 and E[(Xn m)4 ] = 4 with 2 > 0
and 4 < 4 . For all n > 1, denote

n n
X (Xk m) X (Xk m)2 2
Mn = and Nn = .
k=1
k k=1
k

1) Prove that (Mn ) and (Nn ) are two martingales bounded in L2 .

2) Deduce that (Mn ) and (Nn ) converge almost surely and in L2 .

3) Via Kroneckers lemma, prove the strong laws of large numbers

n n
1X 1X
lim Xk = m and lim (Xk m)2 = 2 a.s.
n n n n
k=1 k=1

4) Deduce from 2) the logarithmic strong law

n
1 X Xk
lim =m a.s.
n log n k
k=1

3
 as well as the quadratic strong law
n
1 X (Xk m)2
lim = 2 a.s.
n log n k
k=1

5) Prove also that

n
1 X (Xk m) L
N 0, 2



log n k=1 k
and n
1 X (Xk m)2 2 L
N 0, 4 4 .



log n k=1 k