Let X t describe a Brownian particle with parameter = 4 starting at X = 0

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Let Xt describe a Brownian particle with parameter σ = 4 starting at X = 0 when t = 0 and moving for a time t = T /4. Now let Ys, for s = 0 to s = 3T /4, describe the motion of the same particle from time T/4 until time T. How is XT/4 distributed? How is Y3T/4 distributed? How is XT/4 + Y3T/4 distributed? Work this out either analytically or via simulation, for T = 12. This problem illustrates the inifinite divisibility property of the Wiener process.

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Finance With Monte Carlo

ISBN: 9781461485100

2013th Edition

Authors: Ronald W. Shonkwiler

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