A conditional dichotomy theorem for stochastic processes with independent increments

Let X(t) and Y(t) be two stochastically continuous processes with independent increments over [0, T] and Lévy spectral measures M_t and N_t, respectively, and let the “time-jump” measures M and N be defined over [0, T] × $\text{R}$?{0} by M((t₁, t₂] × A) = M_t2(A) ? M_t1(A) and N((T₁, t₂] × A) = N_t2(A) ? N_t1(A). Under the assumption that M is equivalent to N, it is shown that the measures induced on function space by X(t) and Y(t) are either equivalent or orthogonal, and necessary and sufficient conditions for equivalence are given. As a corollary a complete characterization of the set of admissible translates of such processes is obtained: a function f is an admissible translate for X(t) if and only if it is an admissible translate for the Gaussian component of X(t). In particular, if X(t) has no Gaussian component, then every nontrivial translate of X(t) is orthogonal to it.     

Smallest g -supersolution with constraint

In this paper the existence and uniqueness of the smallest g-supersolution for BSDE is discussed in the case without Lipschitz condition imposing on both constraint function and drift coefficient in the different method from the one with Lipschitz condition. Then by considering (ξ, g) as a parameter of BSDE, and (ξ ^α, g ^α) as a class of parameters for BSDE, where α belongs to a set , for every there exists a pair of solution {Y ^a, Z^a} for the BSDE, the properties of which is also a solution for some BSDE is studied. This result may be used to discuss optimal problems with recursive utility. This work was supported by NSFC (79790130)     

Backward stochastic differential equations with Azéma's martingale

The aim of this paper is to study backward stochastic differential equations (BSDE) driven by Azéma's martingale and the associated deterministic functional equations. More precisely, we introduce BSDE's vs. Azéma's martingale in a general frame, then we prove that the existence of a solution to a Markovian BSDE implies the existence of a solution to a deterministic functional equation of a new type. Uniqueness for the functional equation is proved in a particular case. Then we discuss BSDE's vs. an asymmetric martingale: half Brownian motion/half Azéma's martingale, which leads to an asymmetric deterministic functional equation.     

The regular part of a semigroup of transformations with restricted range

Let T(X) be the full transformation semigroup on the set X and let T(X,Y) be the semigroup consisting of all total transformations from X into a fixed subset Y of X. It is known that $$F(X, Y)=\{\alpha\in T(X, Y): X\alpha\subseteq Y\alpha\},$$ is the largest regular subsemigroup of T(X,Y) and determines Green??s relations on T(X,Y). In this paper, we show that F(X,Y)?T(Z) if and only if X=Y and |Y|=|Z|; or |Y|=1=|Z|, and prove that every regular semigroup S can be embedded in F(S ¹,S). Then we describe Green??s relations and ideals of F(X,Y) and apply these results to get all of its maximal regular subsemigroups when Y is a nonempty finite subset of X.     

Dynamic Markov bridges motivated by models of insider trading

Given a Markovian Brownian martingale Z, we build a process X which is a martingale in its own filtration and satisfies X₁=Z₁. We call X a dynamic bridge, because its terminal value Z₁ is not known in advance. We compute its semimartingale decomposition explicitly under both its own filtration F^X and the filtration F^X,Z jointly generated by X and Z. Our construction is heavily based on parabolic partial differential equations and filtering techniques. As an application, we explicitly solve an equilibrium model with insider trading that can be viewed as a non-Gaussian generalization of the model of Back and Pedersen (1998) [3], where the insider’s additional information evolves over time.     

Some results on general quadratic reflected BSDEs driven by a continuous martingale

We study the well-posedness of general reflected BSDEs driven by a continuous martingale, when the coefficient f$f$ of the driver has at most quadratic growth in the control variable Z$Z$, with a bounded terminal condition and a lower obstacle which is bounded above. We obtain the basic results in this setting: comparison and uniqueness, existence, stability. For the comparison theorem and the special comparison theorem for reflected BSDEs (which allows one to compare the increasing processes of two solutions), we give intrinsic proofs which do not rely on the comparison theorem for standard BSDEs. This allows to obtain the special comparison theorem under minimal assumptions. We obtain existence by using the fixed point theorem and then a series of perturbations, first in the case where f$f$ is Lipschitz in the primary variable Y$Y$, and then in the case where f$f$ can have slightly-superlinear growth and the case where f$f$ is monotonous in Y$Y$ with arbitrary growth. We also obtain a local Lipschitz estimate in BMO$BMO$ for the martingale part of the solution.     

A relation between spaces implied by their t-equivalence

We prove that if X and Y are t-equivalent spaces (that is, if Cp(X) and Cp(Y) are homeomorphic), then there are spaces Zn, locally closed subspaces Bn of Zn, and locally closed subspaces Yn of Y, n∈N⁺, such that each Zn admits a perfect finite-to-one mapping onto a closed subspace of Xn, Yn is an image under a perfect mapping of Bn, and Y=?{Yn:n∈N⁺}. It is deduced that some classes of spaces, which for metric spaces coincide with absolute Borelian classes, are preserved by t-equivalence. Also some limitations on the complexity of spaces t-equivalent to “nice” spaces are obtained.     

Second‐order backward stochastic differential equations and fully nonlinear parabolic PDEs

For a d‐dimensional diffusion of the form dX_t = μ(X_t)dt + σ(X_t)dW_t and continuous functions f and g, we study the existence and uniqueness of adapted processes Y, Z, Γ, and A solving the second‐order backward stochastic differential equation (2BSDE) If the associated PDE has a sufficiently regular solution, then it follows directly from Itô's formula that the processes solve the 2BSDE, where ?? is the Dynkin operator of X without the drift term. The main result of the paper shows that if f is Lipschitz in Y as well as decreasing in Γ and the PDE satisfies a comparison principle as in the theory of viscosity solutions, then the existence of a solution (Y, Z,Γ, A) to the 2BSDE implies that the associated PDE has a unique continuous viscosity solution v and the process Y is of the form Y_t = v(t, X_t), t ∈ [0, T]. In particular, the 2BSDE has at most one solution. This provides a stochastic representation for solutions of fully nonlinear parabolic PDEs. As a consequence, the numerical treatment of such PDEs can now be approached by Monte Carlo methods. © 2006 Wiley Periodicals, Inc.     

A uniform asymptotic expansion for weighted sums of exponentials

We consider the random variable Z_n,α=Y₁+2^αY₂+?+n^αY_n, with α∈R and Y₁,Y₂,… independent and exponentially distributed random variables with mean one. The distribution function of Z_n,α is in terms of a series with alternating signs, causing great numerical difficulties. Using an extended version of the saddle point method, we derive a uniform asymptotic expansion for P(Z_n,α<x) that remains valid inside (α≥−1/2) and outside (α<−1/2) the domain of attraction of the central limit theorem. We discuss several special cases, including α=1, for which we sharpen some of the results in Kingman and Volkov (2003).     

Weakly Regular Semigroups of Isotone Transformations

Let X be a partially ordered set and O(X) be the semigroup of all mappings X → X that preserve the order, i.e., x ≤ y ? xα ≤ yα for all x, y ∈ X. It is proved that the semigroup O(X) is weakly regular in the wide sense if and only if at least one of the following conditions holds: (1) X is a quasi-complete chain; (2) the elements of X are not comparable pairwise; (3) X = Y ∪ Z, where y < z for y ∈ Y, z ∈ Z; (4) X = Y ∪ Z, where y ₀ ∈ Y, z ₀ ∈ Z, and y ₀ < z for z ∈ Z, y < z0 for y ∈ Y; (5) X = {a, c} ∪ B, where a < b < c for b ∈ B; (6) X = {1, 2, 3, 4, 5, 6}, where 1 < 4, 1 < 5, 2 < 5, 2 < 6, 3 < 4, 3 < 6. Moreover, if X is a quasi-ordered set but not partially ordered, then the semigroup O(X) is weakly regular in the wide sense if and only if x ≤ y for all x, y ∈ X.     

On the martingale property of certain local martingales

The stochastic exponential ${Z_t= {\rm exp}\{M_t-M_0-(1/2)\langle M,M\rangle_t\}}$ of a continuous local martingale M is itself a continuous local martingale. We give a necessary and sufficient condition for the process Z to be a true martingale in the case where ${M_t=\int_0^t b(Y_u)\,dW_u}$ and Y is a one-dimensional diffusion driven by a Brownian motion W. Furthermore, we provide a necessary and sufficient condition for Z to be a uniformly integrable martingale in the same setting. These conditions are deterministic and expressed only in terms of the function b and the drift and diffusion coefficients of Y. As an application we provide a deterministic criterion for the absence of bubbles in a one-dimensional setting.     

Some inverse problems involving conditional expectations

Let (Ω, F, P) be a probability space, let H be a sub-σ-algebra of F, and let Y be positive and H-measurable with E[Y] = 1. We discuss the structure of the convex set CE(Y; H) = {X ∈ pF: Y = E[X|H]} of random variables whose conditional expectation given H is the prescribed Y. Several characterizations of extreme points of CE(Y; H) are obtained. A necessary and sufficient condition is given in order that CE(Y; H) be the closed, convex hull of its extreme points. For the case of finite F we explicitly calculate the extreme points of CE(Y; H), identify pairs of adjacent extreme points, and characterize extreme points of CE(Y; H) ? CE(Z; G), where G is a second sub-σ-algebra of F and Z ∈ pG. When H = σ(Y) and appropriate topological hypotheses hold, extreme points of CE(Y; H) are shown to be in explicit one-to-one correspondence with certain left inverses of Y. Finally, it is shown how the same approach can be applied to the problem of extremal random measures on $\text{R}$₊ with a prescribed compensator, to deduce that the number of extreme points is zero or one.     

Lower quasicontinuity, joint continuity and related concepts

Let X and Y be topological spaces, let Z be a metric space, and let f:X×Y→Z be a mapping. It is shown that when Y has a countable base B, then under a rather general condition on the set-valued mappings X∋x→fx(B)∈Z², B∈B, there is a residual set R⊂X such that for every (a,b)∈R×Y, f is jointly continuous at (a,b) if (and only if) fa:Y→Z is continuous at b. Several new results are also established when the notion of continuity is replaced by that of quasicontinuity or by that of cliquishness. Our approach allows us to unify and improve various results from the literature.     

Exponential families of mixed Poisson distributions

If I=(I₁,…,I_d) is a random variable on [0,∞)^d with distribution μ(dλ₁,…,dλ_d), the mixed Poisson distribution MP(μ) on N^d is the distribution of (N₁(I₁),…,N_d(I_d)) where N₁,…,N_d are ordinary independent Poisson processes which are also independent of I. The paper proves that if F is a natural exponential family on [0,∞)^d then MP(F) is also a natural exponential family if and only if a generating probability of F is the distribution of v₀+v₁Y₁+?+v_qY_q for some q?d, for some vectors v₀,…,v_q of [0,∞)^d with disjoint supports and for independent standard real gamma random variables Y₁,…,Y_q.     

A duality relation for entrance and exit laws for Markov processes

Markov processes X_t on (X, F_X) and Y_t on (Y, F_Y) are said to be dual with respect to the function f(x, y) if E_xf(X_t, y) = E_yf(x, Y_t for all x ? X, y ? Y, t ? 0. It is shown that this duality reverses the role of entrance and exit laws for the processes, and that two previously published results of the authors are dual in precisely this sense. The duality relation for the function f(x, y) = 1_{x<y} is established for one-dimensional diffusions, and several new results on entrance and exit laws for diffusions, birth-death processes, and discrete time birth-death chains are obtained.     

On cone orderings and the linear complementarity problem

This paper first generalizes a characterization of polyhedral sets having least elements, which is obtained by Cottle and Veinott [6], to the situation in which Euclidean space is partially ordered by some general cone ordering (rather than the usual ordering). We then use this generalization to establish the following characterization of the class $\text{C}$ of matrices ($\text{C}$ arises as a generalization of the class of Z-matrices; see [4], [13], [14]): M∈$\text{C}$ if and only if for every vector q for which the linear complementarity problem (q,M) is feasible, the problem (q,M) has a solution which is the least element of the feasible set of (q,M) with respect to a cone ordering induced by some simplicial cone. This latter result generalizes the characterizations of K-and Z-matrices obtained by Cottle and Veinott [6] and Tamir [21], respectively.     

Unconditional martingale difference sequences in Banach spaces

For a Banach space Y, the question of whether Lp(μ,Y) has an unconditional basis if 1<p<∞ and Y has unconditional basis, stood unsolved for a long time and was answered in the negative by Aldous. In this work we prove a weaker, positive result related to this question. We show that if (yj) is a basis of Y and (di) is a martingale difference sequence spanning Lp(μ) then the sequence (di⊗yj) is a basis of Lp(μ,Y) for 1?p<∞. Moreover, if 1<p<∞ and (yj) is unconditional then (di⊗yj) is strictly dominated by an unconditional tensor product basis. In addition, for 1<p<∞, we show that if (di)⊂Lp(μ) is a martingale difference sequence then there exists a constant K>0 so that

     

Mutual information in Gaussian channels

In the Gaussian channel Y(t) = Φ(t) + X(t) = message + noise, where Φ(t) and X(t) are mutually independent, the information I(Y, Φ) is evaluated. One of the results is that I(Y, Φ) < ∞ if and only if Φ ? $\text{H}$(X) = the reproducing kernel Hilbert space for X(·). And the causal formula of I(Y, Φ) is given.     

On the greatest splitting topology

It is well known that (see, for example, [H. Render, Nonstandard topology on function spaces with applications to hyperspaces, Trans. Amer. Math. Soc. 336 (1) (1993) 101-119; M. Escardo, J. Lawson, A. Simpson, Comparing cartesian closed categories of (core) compactly generated spaces, Topology Appl. 143 (2004) 105-145; D.N. Georgiou, S.D. Iliadis, F. Mynard, in: Elliott Pearl (Ed.), Function Space Topologies, Open Problems in Topology, vol. 2, Elsevier, 2007, pp. 15-22]) the intersection of all admissible topologies on the set C(Y,Z) of all continuous maps of an arbitrary space Y into an arbitrary space Z, is always the greatest splitting topology. However, this intersection maybe not admissible. In the case, where Y is a locally compact Hausdorff space the compact-open topology on the set C(Y,Z) is splitting and admissible (see [R.H. Fox, On topologies for function spaces, Bull. Amer. Math. Soc. 51 (1945) 429-432; R. Arens, A topology for spaces of transformations, Ann. of Math. 47 (1946) 480-495; R. Arens, J. Dugundji, Topologies for function spaces, Pacific J. Math. 1 (1951) 5-31]), which means that the intersection of all admissible topologies on C(Y,Z) is admissible. In [R. Arens, J. Dugundji, Topologies for function spaces, Pacific J. Math. 1 (1951) 5-31] an example of a non-locally compact Hausdorff space Y is given having the same property for the case, where Z=[0,1], that is on the set C(Y,[0,1]) the compact-open topology is splitting and admissible. This space Y is the set [0,1] with a topology τ, whose semi-regular reduction coincides with the usual topology on [0,1]. Also, in [R. Arens, J. Dugundji, Topologies for function spaces, Pacific J. Math. 1 (1951) 5-31, Theorem 5.3] another example of a non-locally compact space Y is given such that the compact-open topology on the set C(Y,[0,1]) is distinct from the greatest splitting topology.In this paper first we construct non-locally compact Hausdorff spaces Y such that the intersection of all admissible topologies on the set C(Y,Z), where Z is an arbitrary regular space, is admissible. Furthermore, for a Hausdorff splitting topology t on C(Y,Z) we find sufficient conditions in order that t to be distinct from the greatest splitting topology. Using this result, we construct some concrete non-locally compact spaces Y such that the compact-open topology on C(Y,Z), where Z is a Hausdorff space, is distinct from the greatest splitting topology. Finally, we give some open problems.     

A characterization of distributions of independent random vectors by the independence of transformed vectors

If W and Z are independent random vectors and Y₁, Y₂, …, Y_n are the result of a transformation satisfying certain general conditions then W and Z are distributed according to a certain class of densities if and only if for suitable q, (Y₁, …, Y_q) and (Y_q+1, …, Y_n) are independent.