Invariance times

Abstract: On a probability space

(O m e g a, m a t h c a l A, m a t h b b Q)

we consider two filtrations

m a t h b b F s u b s e t m a t h b b G

and a

m a t h b b G

stopping time

h e t a

such that the

m a t h b b G

predictable processes coincide with

m a t h b b F

predictable processes on

(0, h e t a]

. In this setup it is well-known that, for any

m a t h b b F

semimartingale

X

, the process

X^{h e t a -}

(

X

stopped "right before

h e t a

") is a

m a t h b b G

semimartingale.Given a positive constant

T

, we call

h e t a

an invariance time if there exists a probability measure

m a t h b b P

equivalent to

m a t h b b Q

on

m a t h c a l F_{T}

such that, for any

(m a t h b b F, m a t h b b P)

local martingale

X

,

X^{h e t a -}

is a

(m a t h b b G, m a t h b b Q)

local martingale. We characterize invariance times in terms of the

(m a t h b b F, m a t h b b Q)

Az'ema supermartingale of

h e t a

and we derive a mild and tractable invariance time sufficiency condition. We discuss invariance times in mathematical finance and BSDE applications.

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