Stat 150 Stochastic Processes

Spring 2009

Lecture 27: Hitting Probabilities for Brownian Motion

Lecturer: Jim Pitman

The French mathematician Paul L evy rst showed that several random variables have the same distribution for a Brownian path: (1) g1 := Time of last zero before 1 (See Problem 2.5 on Page 497 for g1 = 0 in text) (2) A+ (1) =
1 0

1(Bt > 0)dt, function of time spent > 0 up to time 1

(3) Time when the maximum of B on [0,1] is attained (4) Time when the minimum of B on [0,1] is attained All of these variables have the Beta(1/2, 1/2) distribution, also called the Arcsin Law on [0,1] with density at u [0, 1] 1 u 1u Surprising (at least for g1 , but not for the others): symmetry about 1/2 U shape Hitting probability for BM First discuss BM started at x. This is x + Bt , t 0 for (Bt ) the standard BM as before. Let Px governs BM started at x, then Px , x R t together as the distributions of a Markov process indexed by its starting state x. Problem: Look at BM started at a, 0 < a < b, run until T0,b when B rst hit 0 or b. Then Pa (B (T0,b ) = b) = Pa (B hits b before 0) = a/b. .

Lecture 27: Hitting Probabilities for Brownian Motion

T0,b

T0,b

Idea: BM is the continuous limit of RW. We know this formula for 1, 1 2 RW, a, b integers, 0 < a < b. Look at the BM case for a and b integers. Easy: a = 1, b = 2
2 1

1 2

-1

Recall hitting +1 before -1 has the same probability as hitting -1 before +1. Easy analysis shows P1 (B (T0,3 ) = 3) = 1/3
3

2 1/2 1

Key Idea: After rst reach 2, the BM starts afresh as if it starts at 2. There is a coin tossing walk embedded in the BM. Exploit this to derive the a/b formula for BM. Next, suppose a, b are rational numbers. Work on multiples of c where a/c and a/c b/c are integers. Then = a/b b/c

Lecture 27: Hitting Probabilities for Brownian Motion

Use rational numbers are dense in reals and obvious monotonicity in a, b to get result for real a, b. Martingales Denition: (Mt , t 0) is called a Martingale if E(Mt |Ms , 0 s u) = Mu for 0 < u < t

E[Mt g (Ms , 0 s u)] = E[Mu g (Ms , 0 s u)] for 0 < u < t, all bounded measurable function g . Notice: (Bt , t 0) is a MG. Given Bs , 0 s u, Bt N (Bu , t u) = E(Bt |Bs , 0 s u) = Bu Var(Bt |Bs , 0 s u) = t u Key fact: Dene idea of stopping time for (Mt ), ( t) is determined by (Ms , 0 s t) for all t 0. Stopped process Mt := Mt M if t if t >

Theorem: If M is a MG with continuous path and is a stopping time for M, then (Mt , t 0) is also a MG. Application: Take Mt = a + Bt for B a standard BM. T := T0,b = rst t : Mt = 0 or b E[Mt ] a Then a = E[Mt ] =0 P(MT = 0, T t) + b P(MT = b, T t) ( bP(MT = b)) + E(Mt 1(T > t)) ( 0) = a = b P(MT = b) = P(MT = b) = a/b as claimed. Introduce a drift Look at Dt a drifting BM started at a > 0. Dt = a + t + Bt Find Pa (D hits b before 0).

Lecture 27: Hitting Probabilities for Brownian Motion

Parallel to p q walk Sn . Found a suitable MG: Mn := (q/p)Sn Key idea: Look at rSn Mn = rSn E(rSn ) eBt . Look for continuous E(eBt )

works for any r. Good choice r = q/p makes E(rSn ) = 1 for S0 = 0. For continuous time/space, let r = e , then Mt = analog with B instead of Sn . First E(eBt ) = Then E[Mt+s |Bu , 0 u t] = = =
()

1 2 1 1 x2 ex e 2 t dx = e 2 t 2t

E(eBt+s |Bu , 0 u t) E(eBt+s ) E(e(Bt+s Bt ) eBt |Bu , 0 u t) e2 e 2 s eBt

1 2 1 2 s 1 2 1 2 (t+s)

e 2 te 2 ( ) = Mt We have this for all !

2 Return to Dt = a + t + Bt . Look at eDt = ea et eBt . Want = 1 2 () = 2 , then eDt = ea Mt Conclusion: If Dt is a drifting BM, then (e2Dt , t 0) is a MG. Analog of Sn is p q walk and (q/p)Sn is a MG. Exercise: Use this MG to solve the problem of Pa (D hits b before 0).