On truncated variation, upward truncated variation and downward truncated variation for diffusions

DOI10.1016/J.SPA.2012.08.007zbMATH Open1270.60083arXiv1109.0043OpenAlexW2062007434MaRDI QIDQ1933596FDOQ1933596

Piotr Miłoś, Rafał M. Łochowski

Publication date: 24 January 2013

Published in: Stochastic Processes and their Applications (Search for Journal in Brave)

Abstract: The truncated variation, $T{V}^c$, is a fairly new concept introduced in [5]. Roughly speaking, given a c`adl`ag function $f$, its truncated variation is "the total variation which does not pay attention to small changes of $f$, below some threshold $c>0$". The very basic consequence of such approach is that contrary to the total variation, $T{V}^c$ is always finite. This is appealing to the stochastic analysis where so-far large classes of processes, like semimartingales or diffusions, could not be studied with the total variation. Recently in [6], another characterization of $T{V}^c$ was found. Namely $T{V}^c$ is the smallest total variation of a function which approximates $f$ uniformly with accuracy $c/2$. Due to these properties we envisage that $T{V}^c$ might be a useful concept to the theory of processes. For this reason we determine some properties of $T{V}^c$ for some well-known processes. In course of our research we discover intimate connections with already known concepts of the stochastic processes theory. Firstly, for semimartingales we proved that $T{V}^c$ is of order $c^{-1}$ and the normalized truncated variation converges almost surely to the quadratic variation of the semimartingale as $csearrow0$. Secondly, we studied the rate of this convergence. As this task was much more demanding we narrowed to the class of diffusions (with some mild additional assumptions). We obtained the weak convergence to a so-called Ocone martingale. These results can be viewed as some kind of large numbers theorem and the corresponding central limit theorem. All the results above were obtained in a functional setting, viz. we worked with processes describing the growth of the truncated variation in time. Moreover, in the same respect we also treated two closely related quantities - the so-called upward truncated variation and downward truncated variation.

Full work available at URL: https://arxiv.org/abs/1109.0043

zbMATH Keywords

total variationstochastic processesdiffusionssemimartingalestruncated variation

Mathematics Subject Classification ID

Diffusion processes (60J60) Martingales with continuous parameter (60G44)

Cited In (8)

• Quadratic variation of a càdlàg semimartingale as a.s. limit of the normalized truncated variations
• Energy of taut strings accompanying random walk
• On the double Laplace transform of the truncated variation of a Brownian motion with drift
• Energy of taut strings accompanying Wiener process
• Integrability and concentration of the truncated variation for the sample paths of fractional Brownian motions, diffusions and Lévy processes
• On the quadratic variation of the model-free price paths with jumps
• One-dimensional game-theoretic differential equations
• The play operator, the truncated variation and the generalisation of the Jordan decomposition

This page was built for publication: On truncated variation, upward truncated variation and downward truncated variation for diffusions

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q1933596)