Chapter 9

Appendix
This appendix shortly reviews some notions used in the preceding chapters.
It does not aim at completeness and is addressed to the non-probabilistic
reader, who is referred to standard texts, e.g. [67], [119] for more details.
9.1 Measurability
Given a sequence (Y
n
)
nN
of random variables, a random variable F on a
probability space (, T, P) is said to be T
n
-measurable if it can be written
as a function
F = f
n
(Y
0
, . . . , Y
n
)
of Y
0
, . . . , Y
n
, where f
n
: R
n+1
R. This denes a ltration (T
n
)
n1
as
T
1
= ,
and
T
n
= (Y
0
, . . . , Y
n
), n 0,
where (Y
0
, . . . , Y
n
) is the smallest -algebra making Y
0
, . . . , Y
n
measurable.
The space of T
n
-measurable random variables is denoted by L
0
(, T
n
, P).
9.2 Gaussian Random Variables
A random variable X is Gaussian with mean and variance
2
if and only
if its characteristic function satises
IE[e
iX
] = e
i
2

2
/2
, R.
From e.g. Corollary 16.1 of [67] we have the following.
N. Privault, Stochastic Analysis in Discrete and Continuous Settings,
Lecture Notes in Mathematics 1982, DOI 10.1007/978-3-642-02380-4 9,
c Springer-Verlag Berlin Heidelberg 2009
295
296 9 Appendix
Proposition 9.2.1. Let X
1
, . . . , X
n
be an orthogonal family of centered
Gaussian variables, i.e.
IE[X
i
X
j
] = 0, 1 i ,= j n.
Then (X
1
, . . . , X
n
) is a vector of independent random variables.
9.3 Conditional Expectation
Consider (, T, P) a probability space and ( T a sub -algebra of T.
The conditional expectation IE[F [ (] of F L
2
(, T, P) given ( can be
dened as the orthogonal projection of F on L
2
(, (, P) for the scalar product
F, G) := IE[FG], hence it satises
IE[G(F IE[F [ (])] = 0, G L
2
(, (, P).
The conditional expectaction has the following properties
a) IE[IE[F [ T] [ (] = IE[F [ (] if ( T.
b) IE[GF [ (] = GIE[F [ (] if G is (-measurable and suciently integrable.
c) IE[f(X, Y ) [ T] = IE[f(X, y)]
y=Y
if X, Y are independent and Y is
T-measurable.
Property (a) is referred to as the tower property.
The Jensen inequality states that for any convex function : R
d
R
d
we have
(IE[F]) IE[(F)]. (9.3.1)
9.4 Martingales in Discrete Time
Consider (T
n
)
nN
an increasing family of sub -algebra of T. A discrete time
square-integrable martingale with respect to (T
n
)
nN
is a family (M
n
)
nN
of
random variables such that
i) M
n
L
2
(, T
n
, P), n N,
ii) IE[M
n+1
[ T
n
] = M
n
, n N.
Then the process
(Y
0
+ +Y
n
)
n0
9.5 Martingales in Continuous Time 297
is a martingale with respect to its own ltration dened as
T
1
= ,
and
T
n
= (Y
0
, . . . , Y
n
), n 0,
if and only if the sequence (Y
n
)
nN
satises
IE[Y
n
[ T
n1
] = 0, n N.
Proposition 9.4.1. Let F L
2
(). Then (IE[F [ T
n
])
nN
converges to
F a.s.
Proof. This is a consequence of the martingale convergence theorem, cf. e.g.
Theorem 27.1 in [67].
9.5 Martingales in Continuous Time
Let (, T, P) be a probability space and (T
t
)
tR
+
a ltration, i.e. an increas-
ing family of sub -algebras of T. We assume that (T
t
)
tR
+
is continuous on
the right, i.e.
T
t
=

s>t
T
s
, t R
+
.
Denition 9.5.1. A stochastic process (M
t
)
tR
+
such that IE[[M
t
[
2
] < ,
t R
+
, is called an T
t
-martingale if
IE[M
t
[T
s
] = M
s
, 0 s < t.
The martingale (M
t
)
tR
+
is said to be square-integrable when E[[M
t
[
2
] < ,
t R
+
.
A process (X
t
)
tR
+
is said to have independent increments if X
t
X
s
is
independent of (X
u
: 0 u s), 0 s < t.
Proposition 9.5.2. Every integrable process (X
t
)
tR
+
with centered inde-
pendent increments is a martingale with respect to the ltration
T
t
:= (X
u
: u t), t R
+
,
it generates.
298 9 Appendix
9.6 Markov Processes
Let (
0
(R
n
) denote the class of continuous functions tending to 0 at innity.
Recall that f is said to tend to 0 at innity if for all > 0 there exists a
compact subset K of R
n
such that [f(x)[ for all x R
n
K.
Denition 9.6.1. An R
n
-valued stochastic process, i.e. a family (X
t
)
tR
+
of random variables on (, T, P), is a Markov process if for all t R
+
the
-elds
T
+
t
:= (X
s
: s t)
and
T
t
:= (X
s
: 0 s t).
are conditionally independent given X
t
.
This condition can be restated by saying that for all A T
+
t
and B T
t
we
have
P(A B [ X
t
) = P(A [ X
t
)P(B [ X
t
),
cf. Chung [25]. This denition naturally entails that:
i) (X
t
)
tR
+
is adapted with respect to (T
t
)
tR
+
, i.e. X
t
is T
t
-measurable,
t R
+
, and
ii) X
u
is conditionally independent of T
t
given X
t
, for all u t, i.e.
IE[f(X
u
) [ T
t
] = IE[f(X
u
) [ X
t
], 0 t u,
for any bounded measurable function f on R
n
.
Processes with independent increments provide simple examples of Markov
processes.
The transition kernel
s,t
associated to (X
t
)
tR
+
is dened as

s,t
(x, A) = P(X
t
A [ X
s
= x) 0 s t.
The transition operator (P
s,t
)
0st
associated to (X
t
)
tR
+
is dened as
P
s,t
f(x) = IE[f(X
t
) [ X
s
= x] =

R
n
f(y)
s,t
(x, dy), x R
n
.
Letting p
s,t
(x) denote the density of X
t
X
s
we have

s,t
(x, A) =

A
p
s,t
(y x)dy, A B(R
n
),
and
P
s,t
f(x) =

R
n
f(y)p
s,t
(y x)dy.
9.7 Tensor Products of L
2
Spaces 299
Next we assume that (X
t
)
tR
+
is time homogeneous, i.e.
s,t
depends only
on the dierence t s, and we will denote it by
ts
. In this case the family
(P
0,t
)
tR
+
is denoted by (P
t
)
tR
+
and denes a transition semigroup associ-
ated to (X
t
)
tR
+
, with
P
t
f(x) = IE[f(X
t
) [ X
0
= x] =

R
n
f(y)
t
(x, dy), x R
n
.
It satises the semigroup property
P
t
P
s
f(x) = IE[P
s
f(X
t
) [ X
0
= x]
= IE[IE[f(X
t+s
) [ X
s
] [ X
0
= x]]
= IE[IE[f(X
t+s
) [ T
s
] [ X
0
= x]]
= IE[f(X
t+s
) [ X
0
= x]
= P
t+s
f(x).
9.7 Tensor Products of L
2
Spaces
Let (X, ) and (Y, ) denote measure spaces. Given f L
2
(X, ) and g
L
2
(Y, ), the tensor product f g of f by g is the function in L
2
(XY, )
dened by
(f g)(x, y) = f(x)g(y).
In particular, the tensor product f
n
g
m
of two functions f
n
L
2
(X, )
n
,
g
m
L
2
(X, )
m
, satises
f
n
g
m
(x
1
, . . . , x
n
, y
1
, . . . , y
m
) = f
n
(x
1
, . . . , x
n
)g
m
(y
1
, . . . , y
m
),
(x
1
, . . . , x
n
, y
1
, . . . , y
m
) X
n+m
. Given f
1
, . . . , f
n
L
2
(X, ), the symmetric
tensor product f
1
f
n
is dened as the symmetrization of f
1
f
n
,
i.e.
(f
1
f
n
)(t
1
, . . . , t
n
) =
1
n!

n
f
1
(t
(1)
) f
n
(t
(n)
), t
1
, . . . , t
n
X,
(9.7.1)
where
n
denotes the set of permutations of 1, . . . , n. Let now L
2
(X)
n
denote the subspace of L
2
(X)
n
= L
2
(X
n
) made of symmetric functions f
n
in n variables. As a convention, L
2
(X)
0
is identied to R. From (9.7.1), the
symmetric tensor product can be extended as an associative operation on
L
2
(X)
n
.
The tensor power of order n of L
2
([0, T], R
d
), n N, d N

, is
L
2
([0, T], R
d
)
n
L
2
([0, T]
n
, (R
d
)
n
).
300 9 Appendix
For n = 2 we have (R
d
)
2
= R
d
R
d
/
d,d
(R) (the linear space of square
d d matrices), hence
L
2
([0, T], R
d
)
2
L
2
([0, T]
2
, /
d,d
(R)).
More generally, the tensor product (R
d
)
n
is isomorphic to R
d
n
. The generic
element of L
2
([0, T], R
d
)
n
is denoted by
f = (f
(i
1
,...,i
n
)
)
1i
1
,...,i
n
d
,
with f
(i
1
,...,i
n
)
L
2
([0, T]
n
).
9.8 Closability of Linear Operators
The notion of closability for operators in normed linear spaces consists in
some minimal hypotheses ensuring that the extension of a densely dened
linear operator is consistently dened.
Denition 9.8.1. A linear operator T : o H from a normed linear space
o into a normed linear space H is said to be closable on H if for every
sequence (F
n
)
nN
o such that F
n
0 and TF
n
U in H, one has
U = 0.
The following proposition is proved by the linearity of T.
Proposition 9.8.2. Assume that T is closable. If (F
n
)
nN
and (G
n
)
nN
con-
verge to F Dom(T) and (TF
n
)
nN
and (TG
n
)
nN
converge respectively to
U and V in H, then U = V .
Proof. Indeed, under the above assumptions, (T(F
n
G
n
))
nN
converges to
U V , hence U = V by the closability condition.
Next we dene the domain of a closable operator.
Denition 9.8.3. Given a closable operator T : o H, let Dom(T) de-
note the space of functionals F for which there exists a sequence (F
n
)
nN
converging to F and such that (TF
n
)
nN
converges to G H.
It follows from Proposition 9.8.2 that the extension of T to Dom(T) is well-
dened if T is closable, as in the following denition.
Denition 9.8.4. Given T : o H a closable operator and F Dom(T),
we let
TF = lim
n
TF
n
,
where (F
n
)
nN
denotes any sequence converging to F and such that (TF
n
)
nN
converges in H.