Theorem in stochastic analysis
In mathematics — specifically, in stochastic analysis — Dynkin's formula is a theorem giving the expected value of any suitably smooth function applied to a Feller process at a stopping time. It may be seen as a stochastic generalization of the (second) fundamental theorem of calculus. It is named after the Russian mathematician Eugene Dynkin.
Statement of the theorem
Let
be a Feller process with infinitesimal generator
. For a point
in the state-space of
, let
denote the law of
given initial datum
, and let
denote expectation with respect to
. Then for any function
in the domain of
, and any stopping time
with
, Dynkin's formula holds:[1]
![{\displaystyle \mathbf {E} ^{x}[f(X_{\tau })]=f(x)+\mathbf {E} ^{x}\left[\int _{0}^{\tau }Af(X_{s})\,\mathrm {d} s\right].}](https://wikimedia.org/api/rest_v1/media/math/render/svg/40310c2ff87077bbda2c6656e3ba340b6b70feb2)
Example: Itô diffusions
Let
be the
-valued Itô diffusion solving the stochastic differential equation
![{\displaystyle \mathrm {d} X_{t}=b(X_{t})\,\mathrm {d} t+\sigma (X_{t})\,\mathrm {d} B_{t}.}](https://wikimedia.org/api/rest_v1/media/math/render/svg/74020ebdc5f13fe26d2889fb82a61b3077db5677)
The infinitesimal generator
of
is defined by its action on compactly-supported
(twice differentiable with continuous second derivative) functions
as[2]
![{\displaystyle Af(x)=\lim _{t\downarrow 0}{\frac {\mathbf {E} ^{x}[f(X_{t})]-f(x)}{t}}}](https://wikimedia.org/api/rest_v1/media/math/render/svg/ff7da1fd18a47cebd600762dfa836a8ecd7131f8)
or, equivalently,[3]
![{\displaystyle Af(x)=\sum _{i}b_{i}(x){\frac {\partial f}{\partial x_{i}}}(x)+{\frac {1}{2}}\sum _{i,j}{\big (}\sigma \sigma ^{\top }{\big )}_{i,j}(x){\frac {\partial ^{2}f}{\partial x_{i}\,\partial x_{j}}}(x).}](https://wikimedia.org/api/rest_v1/media/math/render/svg/934aed8bd504040da45c97370166f2a81d662673)
Since this
is a Feller process, Dynkin's formula holds.[4] In fact, if
is the first exit time of a bounded set
with
, then Dynkin's formula holds for all
functions
, without the assumption of compact support.[4]
Application: Brownian motion exiting the ball
Dynkin's formula can be used to find the expected first exit time
of a Brownian motion
from the closed ball
which, when
starts at a point
in the interior of
, is given by
![{\displaystyle \mathbf {E} ^{a}[\tau _{K}]={\frac {1}{n}}{\big (}R^{2}-|a|^{2}{\big )}.}](https://wikimedia.org/api/rest_v1/media/math/render/svg/eec6e015fb2713fe90af499c6c8525c9b378a430)
This is shown as follows.[5] Fix an integer j. The strategy is to apply Dynkin's formula with
,
, and a compactly-supported
with
on
. The generator of Brownian motion is
, where
denotes the Laplacian operator. Therefore, by Dynkin's formula,
![{\displaystyle {\begin{aligned}\mathbf {E} ^{a}\left[f{\big (}B_{\sigma _{j}}{\big )}\right]&=f(a)+\mathbf {E} ^{a}\left[\int _{0}^{\sigma _{j}}{\frac {1}{2}}\Delta f(B_{s})\,\mathrm {d} s\right]\\&=|a|^{2}+\mathbf {E} ^{a}\left[\int _{0}^{\sigma _{j}}n\,\mathrm {d} s\right]=|a|^{2}+n\mathbf {E} ^{a}[\sigma _{j}].\end{aligned}}}](https://wikimedia.org/api/rest_v1/media/math/render/svg/ece176d130bc960ac2c4de0c6245b921465d72b1)
Hence, for any
,
![{\displaystyle \mathbf {E} ^{a}[\sigma _{j}]\leq {\frac {1}{n}}{\big (}R^{2}-|a|^{2}{\big )}.}](https://wikimedia.org/api/rest_v1/media/math/render/svg/a6aef52c85273a84cb14c212f5bac1374f960163)
Now let
to conclude that
almost surely, and so
as claimed.
References
- ^ Kallenberg (2021), Lemma 17.21, p383.
- ^ Øksendal (2003), Definition 7.3.1, p124.
- ^ Øksendal (2003), Theorem 7.3.3, p126.
- ^ a b Øksendal (2003), Theorem 7.4.1, p127.
- ^ Øksendal (2003), Example 7.4.2, p127.
Sources
- Dynkin, Eugene B.; trans. J. Fabius; V. Greenberg; A. Maitra; G. Majone (1965). Markov processes. Vols. I, II. Die Grundlehren der Mathematischen Wissenschaften, Bände 121. New York: Academic Press Inc. (See Vol. I, p. 133)
- Kallenberg, Olav (2021). Foundations of Modern Probability (third ed.). Springer. ISBN 978-3-030-61870-4.
- Øksendal, Bernt K. (2003). Stochastic Differential Equations: An Introduction with Applications (Sixth ed.). Berlin: Springer. ISBN 3-540-04758-1. (See Section 7.4)