Itô process

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A stochastic process with a stochastic differential. More precisely, a continuous stochastic process $X_t$ on a probability space $(\Omega, \mathcal{F}, \Prob)$ with a certain non-decreasing family $\{\mathcal F_t\}$ of $\sigma$-algebras of is called an Itô process with respect to if there exists processes and (called the drift coefficient and the diffusion coefficient, respectively), measurable with respect to for each , and a Wiener process with respect to , such that

Such processes are called after K. Itô [1], [2]. One and the same process can be an Itô process with respect to two different families . The corresponding stochastic differentials may differ substantially in this case. An Itô process is called a process of diffusion type (cf. also Diffusion process) if its drift coefficient and diffusion coefficient are, for each , measurable with respect to the -algebra

Under certain, sufficiently general, conditions it is possible to represent an Itô process as a process of diffusion type, but, generally, with some new Wiener process (cf. [3]). If an Itô process is representable as a diffusion Itô process with some Wiener process and if the equation is satisfied, then is called the innovation process for .

Examples. Suppose that a certain Wiener process , , with respect to has been given and suppose that

where is a normally-distributed random variable with mean and variance that is measurable with respect to .

The process , regarded with respect to , has stochastic differential

in which the new Wiener process , defined by

is an innovation process for .

References

[1]	I.V. Girsanov, "Transforming a certain class of stochastic processes by absolutely continuous substitution of measures" Theor. Probab. Appl. , 5 : 3 (1960) pp. 285–301 Teor. Veroyatnost. i Primenen. , 5 : 3 (1960) pp. 314–330
[2]	R.S. Liptser, A.N. Shiryaev, "Statistics of random processes" , 1–2 , Springer (1977–1978) (Translated from Russian)
[3]	A.N. Shiryaev, "Stochastic equations of nonlinear filtering of Markovian jump processes" Probl. Inform. Transmission , 2 : 3 (1966) pp. 1–8 Probl. Peredachi Inform. , 2 : 3 (1966) pp. 3–22

Comments

For additional references see Itô formula.