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Xn = 1000(1 + r)n , n = 0, 1, 2, . . .
Here the sample functions are of the form f (n) = 1000(1 + r)n , n =
0, 1, 2, . . ., where r ∈ (0.04, 0.05) The random variable X3 is given by
X3 = 1000(1 + R)3
Since the process is iid, the distribution of (Xt1 , Xt2 , . . . , Xtn ) and
(Xt1 +h , Xt2 +h , . . . , Xtn +h ) are same.
And for X to be Gaussian process, Xt has to be normal for each t.
1
(i) E[X(t)] = µX (t) = µX , ∀t ∈ R,
(ii) Cov[X(t), X(s)] = f (|t − s|), ∀t, s ∈ R
Z 2π
1
E[X(t)] = E[(cos(t + U )] = cos(t + u) du
0 2π
= 0, ∀t ∈ R
Cov[X(t), X(s)] = E[X(t)X(s)] − E[X(t)]E[X(s)]
1
E[X(t)X(s)] = [cos(t + s + 2U ) + cos(t − s)]
2
1
= cos(t − s), ∀t, s ∈ R
2
E[X(t)] = E[Ak ] = 1 ∀t ∈ R
∴ Cov[X(t), X(s)] = 0.
2
6.
7. Let Zn denote the gain of gambler in the nth game. The gambler
stands to gain 1 unit of money with probability p and to lose 1 unit of
money with probability q and Xn be the gambler’s fortune after the
nth game.
Therefore,
Xn = Z1 + Z2 + . . . + Zn
E[Xn+1 |X1 , X2 , . . . Xn ] ≥ Xn
E[Xn+1 |X1 , X2 , . . . Xn ] ≤ Xn
3
9. Let {X(t), t ≥ 0} with X(0) = 0 is a process having independent
increments.
for t < s
Therefore
10. Let U (t) = aW1 (t) + bW2 (t). We need to check that U (t) will satisfy
all the properties of Brownian motion.
(i) U (t) have the continuous sample path a.s., since W1 (t), W2 (t)
have the continuous sample path a.s.
(ii)
(iii) U (t) will have the stationary increments by the same argument.
(iv) since W1 (t)−W1 (s) and W2 (t)−W2 (s) follow normal distribution
with mean 0 and variance t − s,
U (t) − U (s) will also follow normal distribution.
V ar[U (t)−U (s)] = a2 V ar[W1 (t)−W1 (s)]+b2 V ar[W2 (t)−W2 (s)] = (a2 +b2 )(t−s)