- Lecturer: Benjamin Hambly
General Prerequisites:
B8.1 Martingales through Measure Theory is a prerequisite. Consequently, Part A Integration and Part A Probability are also prerequisites.
Course Term: Hilary
Course Lecture Information: 16 lectures
Course Weight: 1
Course Level: H
Assessment Type: Written Examination
Course Overview:
Stochastic processes - random phenomena evolving in time - are encountered in many disciplines from biology, physics, geology through to economics and finance. This course focuses on developing the mathematics needed to describe stochastic processes evolving continuously in time and introduces the basic tools of stochastic calculus which are a cornerstone of modern probability theory. The canonical example of such a stochastic process is Brownian motion, also called the Wiener process. This mathematical object was initially proposed by Bachelier, as a model for asset prices, and by Einstein to describe the displacement of a pollen particle in a fluid. The paths of Brownian motion, or of any continuous martingale, are of infinite variation (they are in fact nowhere differentiable and have non-zero quadratic variation) and one of the aims of the course is to define a theory of integration along such paths as well as a suitable integration by parts given by Itô's formula.
Learning Outcomes:
The students will develop an understanding of Brownian motion and continuous martingales in continuous time. They will became familiar with stochastic calculus and in particular be able to use Itô's formula.
Course Synopsis:
An introduction to stochastic processes in continuous time. Brownian motion - definition, construction and basic properties, regularity of paths. Filtrations and stopping times, first hitting
times. Brownian motion - martingale and strong Markov properties, reflection principle. Martingales - definitions, regularisation and convergence theorems, optional sampling theorem, maximal and Doob's \(3L^p\) inequalities. Quadratic variation, local martingales, semimartingales. Recall of Stieltjes integral. Stochastic integration and Itô's formula with applications.
times. Brownian motion - martingale and strong Markov properties, reflection principle. Martingales - definitions, regularisation and convergence theorems, optional sampling theorem, maximal and Doob's \(3L^p\) inequalities. Quadratic variation, local martingales, semimartingales. Recall of Stieltjes integral. Stochastic integration and Itô's formula with applications.