Homework 10, Random Processes

Nguyen Minh Quan

Instructor: Dr. Pham Hai Ha

September 15, 2023

1 Exercises
In the following exercises, we assume that {Bt }t≥0 is a standard Brownian motion process with
respect to the filtration {Ft }t≥0 and τa is the time it takes for the process to hit a.

Problem 1. What is the distribution of B1 + B2 ?

Solution. Since B1 and B2 − B1 are independent,

B1 + B2 = 2B1 + (B2 − B1 ) = N (0, 4) + N (0, 1) = N (0, 5).

Problem 2. Let Xt = Bt + 3, ∀t ≥ 0. Determine P(X2 > 0).

Solution. Since B2 ∼ N (0, 2),

   
−3 −3
P(X2 > 0) = P(B2 > −3) = 1 − P Z ≤ √ =1−Φ √ ≈ 0.983.
2 2
Here Z is the standard normal random variable and Φ is its cummulative distribution function.

Problem 3. Determine P(B3 < 1|B2 = 3).

Solution. Since B3 − B2 and B2 are independent, while B3 − B2 ∼ B1 ∼ N (0, 1),

P(B3 < 1|B2 = 3) = P(B3 − B2 + B2 < 1|B2 = 3) = P(B3 − B2 < −2|B2 = 3)

= P(B3 − B2 < −2) = P(Z < −2) = Φ(−2) ≈ 0.023.

Problem 4. Show that each of the following processes is a standard Brownian motion:

(a) Yt = −Bt , ∀t ≥ 0;

(b) Zt = Bt+s − Bs , ∀t ≥ 0 where s ≥ 0 is fixed;

√
(c) Ut = Bat / a, ∀t ≥ 0 where a > 0 is fixed;

(d) V0 = 0 and Vt = t · B1/t , ∀t ≥ 0.

Solution. blank

1
 (a) Clearly Y0 = −B0 = 0 and Yt = −Bt ∼ −N (0, t) ∼ N (0, t). Let 0 ≤ m ≤ n ≤ p ≤ q,
then Bn − Bm and Bq − Bp are independent; hence so is their opposites, i.e. Yn − Ym and
Yq − Yp . The stationary increment property holds since

Yq − Yp = −(Bq − Bp ) ∼ −Bq−p ∼ −N (0, q − p) ∼ N (0, q − p) ∼ Yq−p ,

implying that {Yt } is a standard Brownian motion.

(b) Zt = Bt+s − Bs ∼ Bt , ∀t ≥ 0, so {Zt } is a standard Brownian motion.

√ √ √ √
(c) Clearly U0 = B0 / a = 0 and Ut = Bat / a ∼ N (0, at)/ a ∼ N (0, at/( a)2 ) = N (0, t).
Let 0 ≤ m ≤ n ≤ p ≤ q, then Ban − Bam and Baq − Bap are independent; hence
√ √
Un − Um = (Ban − Bam )/ a and Uq − Up = (Baq − Bap )/ a

are also independent. The stationary increment property holds since

√ √
Uq − Up = (Baq − Bap )/ a ∼ Ba(q−p) / a = Uq−p ,

implying that {Ut } is a standard Brownian motion.

(d) Clearly Vt = t · B1/t ∼ t · N (0, 1/t) ∼ N (0, t2 · 1/t) = N (0, t). Let 0 < m ≤ n ≤ p ≤ q,
then

E(Vm Vn ) = mn · E(B1/m B1/n ) = mn(cov(B1/m , B1/n ) + E(B1/m ) · E(B1/n ))

= mn(min {1/m, 1/n} + 0) = min {m, n} ,

implying

cov(Vn − Vm , Vq − Vp ) = E((Vn − Vm )(Vq − Vp )) − E(Vn − Vm ) · E(Vq − Vp )

= E(Vn Vq ) − E(Vn Vp ) − E(Vm Vq ) + E(Vm Vp ) − 0
= q − p − p + q = 0,

thus Vn − Vm and Vq − Vp are independent. The stationary increment property holds since

Vn − Vm = n · B1/n − m · B1/m = m(B1/n − B1/m ) + (n − m)B1/n

∼ (n − m)B1/n − m · B1/m−1/n ∼ (n − m) · N (0, 1/n) − m · N (0, 1/m − 1/n)
∼ N (0, (n − m)2 /n) + N (0, m − m2 /n) ∼ N (0, (n − m)2 /n + m − m2 /n)
= N (0, n − m) ∼ Vn−m ,

implying that {Vt } is a standard Brownian motion.

Problem 5. A particle moves according to the standard Brownian motion {Bt }t≥0 . After 3
hours, the particle is at level 1.5. Find the probability that the particle reaches level 2 sometime
in the next hour.

Solution. By Problem 4b, the process {Zt }t≥0 defined by

Zt = Bt+3 − B3 , ∀t ≥ 0

2
is a standard Brownian motion. Let τa′ be the first passage time for a ∈ R of {Zt }t≥0 , then
τa′ ∼ τa and the increment properties imply the desired conditional probability as
   
P max Bt ≥ 2 B3 = 1.5 = P max Bt+3 ≥ 2 B3 = 1.5
t∈[3,4] t∈[0,1]
 
= P max Bt+3 − B3 + B3 ≥ 2 B3 = 1.5
t∈[0,1]
   
= P max Zt ≥ 0.5 B3 = 1.5 = P max Zt ≥ 0.5
t∈[0,1] t∈[0,1]
 
′ 0.5
= P(τ0.5 ≤ 1) = P(τ0.5 ≤ 1) = 2 · P Z > √
1
= 2(1 − Φ(0.5)) ≈ 0.617.

Problem 7. If Wt = Bt − 3, ∀t ≥ 0, find the probability that Wt reaches level 2 before time 7.

Solution. The increment properties imply the desired probability as

   
P max Wt ≥ 2 = P max Bt ≥ 5 = P(τ5 ≤ 7)
t∈[0,7] t∈[0,7]
    
5 5
=2·P Z > √ =2 1−Φ √ ≈ 0.059.
7 7

2 Simulation
The link to my Google Colaboratory simulation is available below.

https://shorturl.at/mvMP1