Stochastic calculus for a time-changed semimartingale and the associated stochastic differential equations (Q639336)

Let \(Z\) be an \(({\mathfrak I}_t)\)-semimartingale. The \(({\mathfrak I}_t)\)-time-change is defined as a càdlàg, nondecreasing family of \(({\mathfrak I}_t)\)-stopping times. If \((T_t)\) is a finite \(({\mathfrak I}_t)\)-time-change, then a filtration \((G_t)\) is given by \(G_t={\mathfrak I}_t\). For the \(({\mathfrak I}_t)\)-semimartingale \(Z\), the process \((Z_{T_t})\) is a \((G_t)\)-semimartingale. The first hitting time process of a given càdlàg, nondecreasing process \(S\) is a process \(T\) defined by \(T_t= \text{inf}\{u> 0: S_t> t\}\). In the present paper, the author proves that, under certain assumptions, the stochastic integral driven by the time-changed semimartingale is a time-changed stochastic integral driven by the original semimartingale \[ \int^t_0 K_s dZ_{T_s}= \int^{T_t}_0 K_{S(s-)} dZ_s. \] The consequence of this is a time-changed Itô formula. The author discusses also the existence and uniqueness of a solution to the stochastic differential equation \[ dX_t= \mu(E_t, X_{t-}) dE_t+ \sigma(E_t, X_{t-})dZ_{E_t}\tag{1} \] with \(X_0= x_0\) and the connection between (1) and the classical Itô-type stochastic differential equation \[ dY_t= \mu(t, Y_{t-}) dt+ \sigma(t, Y_{t-}) dZ_t \] with \(Y_0= x_0\). The form of the general solution of linear equations for \(Z= B\), where \(B\) denotes \(({\mathfrak I}_t)\)-Brownian motion, is also established.