Johnny Litherton Petit Stochastic Dierential Equations Hw 7 i) First consider the partition of the interval 0 t T given by tj = jT n ; ( n) 2 for tj = 0; 1; 2; ::::;

n:Dene the simple function At = 3Wt;j if tj t tj +1 Assumptions: tj t tj +1 2 2 ) = 3(9t2 6ttj 3t2 claim : E(3Wt2 3Wt;j j) by linearity of expectation we know that 2 4 9E(Wt4 ) 18E(Wt2 Wt;j ) + 9E(Wt;j ) which then gives us 2 2 2 2 27t + 27tj + 18E((E(Wt Wt;j ))=Ft;j ) = 2 2 27t2 + 27t2 j + 18E(Wt;j (E(Wt ))=Ft;j ) = 2 2 2 2 t + t))=Ft;j ) = 27t + 27tj + 18E(Wt;j (E(Wt 2 2 27t2 + 27t2 + 18 E ( W ( E ( W t + t))=Ft;j ) = t j t;j 2 2 2 2 27t + 27tj + 18E(Wt;j (Wt tj + t)=Ft;j ) since Wt2 t is martingale and t is a constant 2 2 27t2 + 27t2 18E(Wt tj + t)=Ft;j ) = j ;j (Wt;j 2 27t2 + 27t2 18(3 t + t ( t t )) = j j j j 2 2 2 2 27t + 27tj 54tj 18ttj + 18tj = 3(9t2 6ttj 3t2 j)
n 1 X t j +1 Z n 1 X j =0

ii) Show that

9t2
t j +1 Z

6ttj

3t2 j dt =

3(t2 j +1

t2 j )(tj +1

tj )

j =0 t j

This is trivial : since

9t2

6ttj

3 3t2 j dt = 3t

3t2 tj

tj

j +1 3t2 = j t jtj

3 3 2 3(t3 t3 t2 t2 tj ) j +1 j j +1 tj + tj j tj +1 + tj ) = 3(tj +1 (tj +1 2 2 3(tj +1 tj )(tj +1 tj ) therefore it follows that tj +1 n 1 Z n 1 X X 9t2 6ttj 3t2 dt = 3(t2 t2 tj ) j +1 j )(tj +1 j j =0 t j j =0

t2 j (tj +1

tj ) =

n 1 X j =0

RT (n) iii) conclude that E 0 (3Wt2 At )2 dt ! 0 as n ! 1 RT R T 2 2 2 2 E 0 (3Wt2 3Wt;j ) dt = 0 E(3Wt2 3Wt;j ) dt = t j +1 n 1 Z n 1 X X 3(9t2 6ttj 3t2 ) dt = 9(t2 t2 tj ) = j j +1 j )(tj +1
j =0 t j j =0

9(tj +1 + tj )(tj +1

tj )(tj +1

tj ) =

n 1 X j =0

9T n2 (tj +1 + tj ) =

T2 n2

2T 3 n

n 1 X j =0

T ((j + 1) T n + j n) = T3 n3

T2 n2 (2n(n

T 1) T n + n n2

T n

! 0 as n ! 0 since T is xed

B) i) Show that 3Wt2 (Wtj+1 Wtj ) = (Wt3 Wt3 ) 3Wtj (Wtj+1 Wtj )2 (Wtj+1 Wtj )3 j j +1 j 3 we know that (Wtj+1 Wtj ) = (Wt3 Wt3 ) 3Wt2 Wtj + 3Wtj+1 Wt2 = j +1 j j +1 j 3 3 (Wtj+1 Wtj ) 3Wtj+1 Wtj (Wtj+1 Wtj ) = (Wt3 Wt3 ) 3Wtj (Wtj+1 Wtj )(Wtj+1 + Wtj Wtj ) ) j +1 j (Wtj+1 Wtj )3 = (Wt3 Wt3 ) 3Wtj (Wtj+1 Wtj )2 3Wt2 (Wtj+1 Wtj ) j +1 j j Now just by rearranging the terms we get: ) 3Wtj (Wtj+1 Wtj )2 (Wtj+1 Wtj )3 Wt3 (Wtj+1 Wtj ) = (Wt3 3Wt2 j j +1 j ii) Dene In =
n 1 X j =0

Wtj (Wtj+1

Wtj )2 and Jn =

show that E[ In Jn ] = 0 and E[ (In Jn )2 ] ! 0 as n ! 1 let s condition on Ftj so we get E(E[ In Jn ]=Ftj ) = E(E(Wtj ((Wtj+1 Wtj )2 (tj +1 tj ))=Ftj ) = E(Wtj E(((Wtj+1 Wtj )2 (tj +1 tj ))=Ftj ) = E(Wtj (((tj +1 tj ) (tj +1 tj )) = 0 n 1 X and prove that E[ (In Jn )2 ] = 2 tj (tj +1 tj )2 ! 0
j =0

n 1 X j =0

Wtj (tj +1

tj )

E E

((Wtk+1 Wtk )2 (tk+1 tk ))=Ftk ] = n 1 X E (Wt2 E((Wtj+1 Wtj )2 (tj +1 tj ))2 =Ftj )2 = j E E
j=0 n 1 X

j=0 n 1n 1 X X j=0 k=0

n 1 X

(Wtj ((Wtj+1

Wtj )2

(tj +1

tj )))2 = (tj +1 tj ))

E[(Wtj ; Wtjk ((Wtj+1

Wtj )2

(Wt2 (3(tj +1 j (2Wt2 (tj +1 j

tj )2 tj )2 ) =
T n2
2

2((tj +1
n 1 X

tj )2 + (tj +1

tj )2 =

j=0 n 1 X j=0
3

j=0 n 1 X

E(2Wt2 (tj +1 j

tj )2 = 1) T n3 =
3

2tj (tj +1
3

tj )2 =

2T 2T n n2 ! 0 as n ! 0 clearly therefore In and Jn have the same limit in L2 by def: 2

j=0 n 1 X j=0

( 2j T n ) = 2n(n

note that as n ! 1 tj +1 ZT n 1 n 1 Z X X Jn = Wtj (tj +1 tj ) = Wt dt = Wt dt

j =0 j =0 t j 0

iii) Dene Kn =

n 1 X j =0

(Wtj+1

Wtj )3 prove that EKn = 0

n 1 X j =0

2 and EKn ! 0 as n ! 1: note that

(Wtj+1

Wtj )3 = 0

is straightforward. since 3 odd as in hw 6 n 1 n 1 n 1 X X X E( (Wtj+1 Wtj )3 )2 = E((Wtj+1 Wtj )3 (Wtj+1 =

j =0 n 1 X j =0 n 1 X j =0 j =0

Wtj )3 ) Wtj )3 )

E((Wtj+1

Wtj )6 + 2

1<j<k<n

n 1 X

E((Wtj+1

Wtj )3 (Wtj+1

= E

5 3(tj +1 E((Wtj+1

tj )3 ; it is worth noting that the second term is Wtj )3 (Wtj+1 Wtj )3 E(Wtj+1
n 1 X j =0 T3 n3 ZT 0

j =0 n 1 X j =0

j =0 n 1 X

Wtj )3 )=Ftk ) = Wtj )3 =Ftk )

E((Wtj+1

= 0 therefore E( n(n 1) 5 3

(Wtj+1 !
3 15 T n

Wtj )3 )2 =
3 15 T n3

c) conclude that ZT
0

3 3Wt2 dWt = WT

! 0 as n ! 1 ZT 3 3Wt dt
0 n 1 X j =0

n 1 X j =0

5 3(tj +1

tj )3 =

Note that
n 1 X j =0

3Wt2 dWt is approximated by Wt3 ) j 3Wtj (Wtj+1

n 1 X j =0

3Wt2 (Wtj+1 j

W tj ) =

(Wt3 j +1

Wtj )2

(Wtj+1

Wtj )3 ; note that the

last term goes 0 as n ! 1,

n 1 X j =0

3Wt2 (Wtj+1 j

W tj ) =

(Wt3 j +1

Wt3 ) j

3Wtj (Wtj+1

Wtj )2 : The rst term telescopes

3 and the remaining elements will be WT

3 W0

n 1 X j =0

3Wtj (Wtj+1

Wtj )2 ZT
0

3 WT

3 W0

3In remember that Jn and In have the same limit ZT

0

3Wt dt

3 so we can conclude that WT

3 W0

3 3In = WT

3Wt dt