Almost Sure

12 April 10

Special Processes

Filed under: Special Processes,Stochastic Calculus Notes — George Lowther @ 4:00 PM
Tags: ,

The point in these stochastic calculus notes has been reached where the theory of stochastic integration is sufficiently well developed to apply in a wide range of situations.

Results such as Ito’s lemma, properties of quadratic variations and existence and uniqueness of solutions to stochastic differential equations followed quite directly from the definition of stochastic integration. Then, once it was shown that integration with respect to martingales is well-defined, results such as preservation of the local martingale property and Ito’s isometry also followed without too much effort.

Over the next few posts, I will take a break from further development of the general theory. Instead, I look at certain special processes, applying the calculus developed so far and gaining a few examples to motivate further development of the theory.

This will include properties of Brownian motion, such as Lévy’s characterization, Girsanov transforms, stochastic time changes and martingale representation. Other important processes which I take a brief look at include Bessel processes, the Poisson process and the Cauchy process. We will also derive a general description of processes with independent increments, including the Lévy-Khintchine formula characterizing Lévy processes.

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3 Comments »

  1. Hi,

    About special processes, I was wondering if you were considering devoting some post(s) on Local Times of Semimartingales, which I think is an interesting topic in Stochastic Calculus.

    Best regards

    Comment by TheBridge — 27 October 11 @ 12:45 PM | Reply

    • I was planning on writing a couple of posts on this, but not until I have finished the the ‘general theory of semimartingales’. It is an interesting topic, and something that is important to know. It isn’t needed for the development of the other theory in my notes though, so it fits into its own separate section.

      Comment by George Lowther — 27 October 11 @ 12:56 PM | Reply

      • Great

        I’m looking forward to read those.

        Best Regards

        Comment by TheBridge — 27 October 11 @ 3:59 PM | Reply


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