10 Martingales Martingale ae a clas of sacastc process which has had profound ince ‘onthe development of rbsbliy and toch proces. Ther ae fw ae ofthe sbjct touched by maringales. We will survey the theory and spl ‘ton of sete time mangas end with ome recent develope rinbemaicl nance, Here what expecta he her ‘+ Absolute comity andthe Ragon-Nikoyn Theorem. + Conditions expcntion ‘+ Marigale defiton an lmenary properties and examples «+ Mariage topping theorems ad appicaons. ‘+ Marga comergece teres an applications. 1+ The fandamenal teres of mathemati face, 10.1 Prelude to Conditional Expectation: The Radon-Nikodym Theorem We begin with able conti and relates ditferentition of measures. “Tere anceps for fll aprecadon ofthe mates of con ‘inal expectations Ls (2B) be a mensrabe space. Lt nd. be poe bounded measures cn (0,8). Wesay at iaseatey comic (AC) with eset wien 3M 10, Mating 2 << ssi (A) = 0 imple (A) = 0, We sty tha & concentrates 08 AB ith(a®) = 0. We say that 2 andy are may sngulr, writen 2, i there exis events A,B € B, sch that A 7B = @ and concentrates on A, concentrates on 2 ‘Example. If Ua, Ups at uniform disubations on (0,1), and [2,3] rapes tively then Up Ufa Hisalso te that Us) Uh. ‘Theorem 10.1 Lebesgue Decomposition) Suppose tha and are posve bounded measures oF) (e) There exits unique par of postive, bounded meas, by on B sch ‘hat a where iecews ebay Be Lis (6) There exits a nonnegative Bmeasarable function X with [rence stey= [ xan, Be. such het 2X ts unique wp set of x ease 0. ‘We wil not rove Theorem 1011 butrather focus onthe specilizton known ‘the Radoo-Nikeym theorem. ‘Theorem 10.1.2 (Radon-Nikodym Theorem) Let (2B, P) be the probly ‘space Suppose vie posite bounded measure and v << P. Then here exis ‘in imegrble random arabe X © B such hat w= [ur, ween ts. unique (Pan i write at xe. We als write de cP. Avice prot f the Radoo-Nikodym theorem is based onthe following Hert space elt (ee, for example Resin (1966).101 Peo Condom! Expect: The Rabe Nady Theses 335 Propoon 101.3 Let H bea Hilbert space For x.y denote the ner protct by (x,y) 11: Hv Risa contos ear fnctonal om then ‘there eit ani y€ such chat 10) fy), Weed root Cae 1 I(x) = 0, Ys thea we may take y= Oand we redo. (Case 2: Supose L(2) # O and sume fr silica His ea an eine ” lr €H: La) =0) Listinearso Misasubsgce.L continuous 50M is owed Sins L snotiden ely, we ave MHL Ths herent some 2” M ad bythe projection theorem (Resi (1966; Brockwel and Davis (1981) sen where 2 ¢ Mand € ME, he orthogonal complet of Mand 4 0.Then Tee exis re a04, #0 Thus ao ue B® f AF and ence LS) 40, Define a9 on oa yp yeains Ler) Ler oon (#2) en = te cas) ftom (102), Now write eh) sadacte _ Looe) on from (103). Sox” €M. Since y € A we have (i, y)=0,anderefre ) ()-L0) Gn = 6") =10) ‘fom he ein of". Tos L(x) = 9) a eg 336 10, Manger ‘Tostow uniqueness fy: Suppose her exis yan forall Lay Gy Gy) ‘Ten forall x Gy-y=0, snds0 ‘Ths y-y/ Before the proof fhe Radon-Nikodym theorem, we el the Integral Con ‘pion Lemma which given in slightly expanded form as Lerma 101.1. This [ceded for condtonal expectation and maigale, {Lemma 10.1 (ntegral Comparison Lemma) Suppose (2,8, isa proba. bili space with cB ab fel of B. Suppose X € , ¥ € 9, and that X ‘and are negra Then X HY asp aes, [yxar Svar, Proof of the Radon-Nikodym Theorem. Suppose» << P and deine 500 sa probability measure and Q << P. Set P+0 +2. which slo «probability measure. Then Hom LP) = 132,8, P?) {sa Hilbert space with inne product P Oy foose Note ht ll elements of 1s(P") = L362. B,P*) ae Bueasurabe.On Hd fee ncn Lone fv. cay SotharL :L3(P) + Ris101 Poe Ceaionl Een Te Ron Noy Trem 337 (©) tne, (© bounded (nd ence oni, “Tocheck () we mast show 1201s (ons) wee inion [rem uonis fro. fas f mar 2 fm sf weeny? (by for insane, Example 63.200 page 188) 21V Now, Ls crfinanes an nea on Hl = L3(P"), Tha fren Propoiion 10113, there exists Z € LP") sch ht for al (P") Lay=0.2)= frzarr = [rzaes [ pmo = i vag. aos) Consequently om he inition (108), fol ¥ €L3(P*) Jro-Ze0~ [Zar cas kay a € Banding» 10) hr Jrsa= ows f 2am «on ‘Ten we gt fom (107 that UA) _ fader _ fy24re °= pay Pay * Owe 2810, Maing here, ge te rg inequality, we pid the fact that 2P* = P +O > Q. ‘Therefore, forall Ae B os [20 caw on os [zr [ae Frome Copies 01 dered enh 005 ogame fog-2r o- Pz = Since Q << P, we hive = O[2 = 2} y the definition of soite conn and hence Pr[Z =2] = 0.500 = Z <2, 45 (P"). 1 (105 set ve(BJu vee ‘Tea Y € LPP) ann ae. 0-= ¥ < Las. (P 0 Q oe P*). From (105), LG) (-3)-0- fG" Woe L(-@)")e=L 2)" om Nate,a8N — 0, Sum both sides over -ap 71, ase snd hence as Q ITLHS refers tothe ef side of (108, then dominated conver ene inples us = J 40= 01 1a ed (9 nen cp vas 7 [2