A complete characterization of local martingales which are functions of Brownian motion and its maximum

DOI10.3150/BJ/1165269146MaRDI QIDQ2642799zbMATH OpenOpenAlexFDO

Authors Jan Obłój

Publication date 5 September 2007

Published in Bernoulli (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/math/0504462, https://projecteuclid.org/euclid.bj/1165269146

Mathematics Subject Classification ID

Martingales with continuous parameter (60G44) Generalizations of martingales (60G48) Stochastic integrals (60H05)

Abstract: We prove the max-martingale conjecture given in recent article with Marc Yor. We show that for a continuous local martingale $(N_t:tge0)$ and a function $H:Rx{R}_{+}oR$, $H(N_t,su{p}_{sleqt}{N}_s)$ is a local martingale if and only if there exists a locally integrable function $f$ such that $H(x,y)=in{t}_0^{y}f(s)ds-f(y)(x-y)+H(0,0)$. This implies readily, via Levy's equivalence theorem, an analogous result with the maximum process replaced by the local time at 0.

Review text

A local martingale \((N_t)\) (\(t\geq 0)\) is called max-martingale or simply \(M\)-martingale if there is a function \(H:\mathbb R\times\mathbb R_+\to\mathbb R\) such that \(N_t=H(N_t, \sup_{s\leq t}N_s)\) \((t\geq 0)\). Such processes were first considered in a paper by \textit{J. Azéma} and \textit{M. Yor} [Sémin. Probab. XIII, Lect. Notes Math. 721, 90--115 (1979; Zbl 0414.60055)]. In the present paper it is shown that if \((N_t)\) is continuous, then \(H(N_t,\sup_{s\leq t} N_s)\) \((t\geq 0)\) is a local martingale iff there exists a locally integrable function \(f\) such that \[ H(x,y)=\int^y_0f(s)\,ds -f(y)(x-y)+H(0,0). \] Via Lévy's equivalence theorem, an analogous result holds with the maximum process replaced by the local time at \(0\).

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