Time homogeneous diffusions with a given marginal at a deterministic time

DOI10.1016/J.SPA.2012.11.008MaRDI QIDQ1940229zbMATH OpenOpenAlexFDO

Authors John Noble

Publication date 6 March 2013

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

Full work available at URL https://arxiv.org/abs/1105.5694

zbMATH Keywords

Kreĭn stringsmarginal distributionmartingale diffusion

Mathematics Subject Classification ID

Diffusion processes (60J60)

Abstract: In this article, it is proved that for any cumulative distribution function with compact support and a specified t > 0, there exists a diffusion martingale which has this law at time t. The article proves existence; no claims are made about uniqueness. After a discussion on strings and associated semigroups, the article gives a re-working of a standard approach to the problem of constructing an explicit discrete time martingale diffusion on a finite state space which, for a random geometrically distributed time that is independent of the diffusion, the law of the diffusion stopped at this random time has the prescribed law. This argument is developed, using a fixed point theorem, to determine conditions under which there is a discrete time martingale diffusion that has a prescribed law at an independent random time with negative binomial distribution. The step length for the time discretisation is then reduced and in the limit it is shown that for a finite state space, there exists a continuous time martingale diffusion such that $X_{a}u$ has law $mu$, where $au$ has a Gamma distribution. For fixed $t=E[au]$, the parameters of the Gamma distribution may be altered, reducing the coefficient of variation of $au$ to zero, to show that there is a martingale diffusion $X$ such that $X_t$ has law $mu$. The argument is then extended to obtain the result for any state space that is a bounded measurable subset of $R$.

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