Brownian MotionRevisionSTAT3004/STAT7018

STAT3004/STAT7018

Brownian Questions
These are the sample exam questions on Brownian motion + another brain teaser.
Question 1 The Flash, the fastest human on Earth, has been making money on the side by racing
ordinary humans in a 100 metre dash (as most superhero work is conducted on a volunteer basis,
some other source of income is necessary for those superheroes who, unlike Batman, do not have
an independently wealthy secret identity). In order to make the race more fair, the Flash does not
simply run straight ahead, but instead runs according to a Brownian motion process with drift,
F (t) = F t + W (t), where W (t) is a Brownian motion process with scale parameter F metres per
second. You decide to race the Flash, but you know you run at a speed of metres per second
(presumably much less than the Flashs speed of F metres per second), so you will cover a distance
t metres in any given time period of t seconds.
(a) What is the chance you will actually be ahead of the Flash at time T seconds? [NOTE: You should
write your answer in terms of , F , F , T and (), the cdf of the standard normal distribution.]
Having grown weary of winning so easily, the Flash enlists modern science to clone himself, so
that he will have some competition. Further, in order to make the race last longer, the Flash decides
to race his clone by simply having them each vibrate (i.e., they move according to independent
Brownian motion processes without any drift). The cloning process was not quite perfect (though, it
was at least good enough that the clone is not a sheep), so that the clone can only vibrate 90% as fast
as the Flash. Thus, the Flash races according to a Brownian motion process with scale F metres per
second while the clone races according to a Brownian motion process with scale C = 0.9F metres
per second.
(b) Let L1 be the distance by which the Flash is leading after 1 second. Calculate E[L1 ] and Var(L1 ).
(c) STAT7018 In order to compensate for his clones sub-standard vibrating capabilities, the Flash
gives his clone a 10 metre head start. Is this a fair arrangement, in the sense that both the Flash
and his clone have equal chances of winning the race?

[HINT: A change of integration variable from t to x = c/ t shows that, for any constant c, and any
function G(z):

   
Z
Z
c
c
c
1G
g dt =
2{1 G(x)}g(x)dx,
t t
t
t
0
0
where g(z) = G0 (z) is the derivative of G(z).]

Answer (a) The probability is given by

1/2

1/2

P(T > F T + W (T )) = P(W (T ) < ( F )T ) = (( F )T /F T 1/2 ) = (( F )T 1/2 /F )

which will typically be small if F is moderate and is much larger than F .
(b) Since L1 = (F ) + W (1) we have L1 N ((F ), F2 ) thus E[L1 ] = (F ) and
Var(L1 ) = F2 .
(c) STAT7018 Let F and C be the times for the flash and its clone to run 100 and 90=100-10
meters, respectively. Both times are crossing times for Brownian motions. We know that



P(F t) = 2 1 (100/(F t))

and

P(C t) = 2 1 (100/(C t))) .



Also the latter implies that pdf of C has the form

fC (t) =

90
(90/(V t)) .
C t t

In order to determine whether the race is fair we have to compute P(F < C):
Z
Z
P(F < t|C = t) fC (t) dt
P(F < C|C = t) fC (t) dt =
P(F < C) =
0
0
Z

90
=
P(F < t) (90/(C t)) dt
t
0
C


Z

100
100
1

= 2
(100/(F t)) dt
t t
F t


Z0 F
1
2
= 4
{1 (x)} (x) dx = 4 (x) (x)
2
0
0




3
1
1
1
1
1
= 4 (x) (x)2
=4 1 +
= .
2
2 2 2
2
0
Thus, since P(F < C) = P(F < C) =

1
2

the race is indeed fair.

Question 2 Let {X(t)}t0 and {Y (t)}t0 be independent standard Brownian motion processes.
Imagine that we are tracking a particle which is moving on a flat surface so that its position relative
to its starting point at time t is {X(t), Y (t)}. The squared distance of the particle from its start
point is then D(t) = {X(t)}2 + {Y (t)}2 .
(a) Find D (t) = E{D(t)}. Briefly interpret your result.
(b) Find rD (s, t) = Cov{D(s), D(t)}.
(c) Find the probability that the distance of the particle from its start point, at some pre-specified
fixed time T , is less than .
(d) Define the new process A(t) = Y (t) X(t), which measures the (signed) vertical distance that
the particle is away from the 45-degree line. Further, let A(T ) be the average value of A(t) over the
time interval [0, T ], for some pre-specified fixed time T . Find the mean and variance of A(T ).

Answer (a) Observe that

D (t) = E{D(t)} = E[{X(t)}2 + {Y (t)}2 ] = 2t .
Conclusion: the squared distance of bivariate Brownian motion (X(t), Y (t)) growths linearly, seemingly to indicate that it distances itself from the origin (only on average!!).
(b) Let t s 0. Let Z N (0, 1). Recall E[Z 4 ] = 3. Thus,
Var({X(s)}2 ) = E[{X(s)}4 ] {E[{X(s)}2 ]}2 = E[{s1/2 Z}4 ] {E[{s1/2 Z}2 ]}2 = 2s ,
and
Cov({X(s)}2 , X(s)(X(t) X(s)))
=
independent

E[{X(s)}3 (X(t) X(s))] E[{X(s)}2 ]E[X(s)(X(t) X(s))]

E[{X(s)}3 ]E[X(t) X(s)] E[{X(s)}2 ]E[X(s)]E[X(t) X(s)] = 0 .

As {X(t)} and {Y (t)} are independent BMs the pairs {X(s)}2 , {Y (t)}2 and {X(t)}2 , {Y (s)}2 are

independent and, thus, correlated random variables. As a result,



2
2
2
2
rD (s, t)
=
Cov {X(s)} + {Y (s)} , {X(t)} + {Y (t)}




2
2
2
2
=
Cov {X(s)} , {X(t)} + Cov {Y (s)} , {X(t)}


both standard
2
2
=
2Cov {X(s)} , {X(t)}


2
2
=
2Cov {X(s)} , {X(t) X(s) + X(s)}
=

2Cov({X(s)} , {X(s)} ) + Cov({X(s)} , {X(t) X(s)} +0

|
{z
}
independent

2Var({X(s)} ) = 4s .

Conclusion: The covariance function equals rD (s, t) = 4 min{s2 , t2 }.

(c) Let Z, Y N (0, 1) be independent. Then
Z 2 + Y 2 22 = (1/2, 1/2) ? (1/2, 1/2) = Exponential(1/2)

d
P(Z 2 z) = Constant ez/2 / z (z > 0)).
(Check dz
Consequently, the probability that the distance of the particle from its start point, at some prespecified fixed time T , is less than equals (The squared distance is not a BM!!):
p
P( D(T ) ) = P(D(T ) 1/2 ) = P(Z 2 + W 2 1/2 /T ) = 1 exp{ 1/2 /2T } ,

, T > 0 .

(d) {A(t)} is certainly a Gaussian process, as it is defined as a linear expresion of jointly (even
independent) Gaussian processes {X(t)} and {Y (t)}. We have A (t) = E[X(t)] E[Y (t)] = 0 and
rA (s, t) = Cov(X(s) Y (s), X(t) Y (s)) = rX (s, t) + rY (t) = 2 min{s, t}
As a result, {A(t)} is certainly a Brownian motion with variance 2 = 2.
RT
Next we consider A(T ) = T1 0 A(t) dt be the average value of A(t) over the time interval [0, T ].
A(T ) can be contrived as a multiple of standard integrated Brownian motion, observed at T . Thus,
we may refer to the formula sheet to see that
Z
1 T
E[A(T )] =
A (t) dt = 0
T 0
and
Var(A(T )) =

2
2 2
2
rintegrated standard BM (T, T ) = 2 T 3 = T .
2
T
T 6
3

4

Brain Teaser Let X N (0, 1). Let a (0, ) be a fixed parameter. Introduce Ya := X1|X|<a
X1|X|a .
(a) Show that Ya N (0, 1) for all a > 0.
(b) Show that there is (0, ) such that E[XY ] = 0.
(c) Prove or disprove: with as in (b) X, Y are surely uncorrelated. As a result, they must be
jointly Gaussian, ie. (X, Y ) is a Gaussian vector. (d) Prove or disprove: with as in (b) X, Y are
uncorrelated, and thus independent.
Answer (a) Let a > 0, and compute the mgf of Ya :
mYa (s) = E[esX 1|X|<a ] + E[esX 1|X|a ]

symmetry

E[esX 1|X|<a ] + E[esX 1|X|a ] = mX (t) ,

s R.

(b) Let f : [0, ] R defined by

Z
a 7 f (a) := 2
0

x2 ex /2 dx

2
2

Z
a

x2 ex dx

f is continuous function with f (0) = 1 and f () = 1. Thus, there exists (0, ) such that
f () = 0, giving
E[XY ] = E[X 2 1|X|< ] E[X 2 1|X| ] = f () = 0 ,
as desired.
By choice of , X, Y are uncorrelated since Cov(X, Y ) = E[XY ] = 0.
(c) Disprove. Assume X, Y are jointly Gaussian random variables. Then (X, Y )0 is a Gaussian
vector. But then X + Y is univariate Gaussian. But X + Y = 2X1|X|< is neither deterministic nor
normally distributed, thus non-Gaussian, a contradiction.
(d) Observe that Y = h (X) where h (x) = x1|x|<a x1|x|a is a deterministic function. Thus,
once X is realised we also have the realisation of Y . Consequently, we do not expect them to be
independent.
There are two ways to see this formally: In (c) we disproved that (X, Y ) is a Gaussian vector:
this disproves independence without further calculation. Alternatively note that
P (|Z| < /2, |W | < /2) = P (|Z| < /2) > P (|Z| < /2)2 = P (|Z| < /2)P (|Wa | < /2) .
Z, W are uncorrelated standard normal random variables, but they are neither independent nor
jointly Gaussian.