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An explicit Skorokhod embedding for the age of Brownian excursions and Azéma martingale

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  • Oblój, Jan
  • Yor, Marc

Abstract

A general methodology allowing to solve the Skorokhod stopping problem for positive functionals of Brownian excursions, with the help of Brownian local time, is developed. The stopping times we consider have the following form: T[mu]=inf{t>0: Ft[greater-or-equal, slanted][phi][mu]F(Lt)}. As an application, the Skorokhod embedding problem for a number of functionals (Ft: t[greater-or-equal, slanted]0), including the age (length) and the maximum (height) of excursions, is solved. Explicit formulae for the corresponding stopping times T[mu], such that FT[mu]~[mu], are given. It is shown that the function [phi][mu]F is the same for the maximum and for the age, [phi][mu]=[psi][mu]-1, where . The joint law of (gT[mu],T[mu],LT[mu]), in the case of the age functional, is characterized. Examples for specific measures [mu] are discussed. Finally, a randomized solution to the embedding problem for Azéma martingale is deduced. Throughout the article, two possible approaches, using excursions and martingale theories, are presented in parallel.

Suggested Citation

  • Oblój, Jan & Yor, Marc, 2004. "An explicit Skorokhod embedding for the age of Brownian excursions and Azéma martingale," Stochastic Processes and their Applications, Elsevier, vol. 110(1), pages 83-110, March.
    • Handle: RePEc:eee:spapps:v:110:y:2004:i:1:p:83-110
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    References listed on IDEAS

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    1. Philip Protter & Michael Dritschel, 1999. "Complete markets with discontinuous security price," Finance and Stochastics, Springer, vol. 3(2), pages 203-214.
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    Cited by:

    1. Lim, Adrian P.C. & Yen, Ju-Yi & Yor, Marc, 2013. "Some examples of Skorokhod embeddings obtained from the Azéma–Yor algorithm," Stochastic Processes and their Applications, Elsevier, vol. 123(2), pages 329-346.
    2. Nikeghbali, Ashkan, 2006. "A class of remarkable submartingales," Stochastic Processes and their Applications, Elsevier, vol. 116(6), pages 917-938, June.
    3. Oblój, Jan, 2007. "An explicit solution to the Skorokhod embedding problem for functionals of excursions of Markov processes," Stochastic Processes and their Applications, Elsevier, vol. 117(4), pages 409-431, April.

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