TIRGUL 12 - MEASURE THEORY

Today we will speak about conditional expectation. Let (, F , ) be a probability space. Let G F be a -algebra and let f L1 (, F , ). Then there exist a unique g L1 (, G , ) such that
Claim.

f d =
A A

g d

for all A G . We will write E [f | G ] for g , and call it the conditional expectation of f given G . Let 0 be the restriction of to G , i.e. 0 is the measure on (, G ) such that 0 (A) = (A) for all A G . Let be the signed measure on (, G ) such that 0 , hence from the Radon-Nikodym (A) = f d0 for all A G . It holds that
Proof.

theorem it follows that there exist a unique g L1 (, G , ) such that g d0 = (A) for each A G , and so
g d =
A A A

g d0 = (A) =

f d0 =
A

f d
A

and the claim is proved. Notice that (1) E [f | G ] is G -measurable, (2) f d = E [f | G ] d for all A G , and that E [f | G ] is characterized by these two properties. Also note that E [f | G ] is only dened -almost everywhere. We shall now compute E [f | G ] in some specic cases, for this x some f L1 (, F , ).
Example 1.
A A

If G = {, }, then E [f | G ] =

A A

f d := E [f ]. Clearly E [f ] is

G -measurable, and E [f ] d = f d if A = or A = .

If G = F then E [f | G ] = f . This is so since f is G -measurable, and since property (2) is obvious.

Example 2. Example 3.

Let P F be a countable or nite partition of , and let G = (P ). Then it holds that

E [f | G ]( ) = h( ) :=
C P
1

1C ( )

1 (C )

f d
C

TIRGUL 12 - MEASURE THEORY

for almost all . Clearly h is G -measurable. Let A G , then since

(P ) = { C : Q P}
C Q

it follows that A = C for some Q P , and so

h d =
A C Q C

C Q

(
C Q C

h d =

1 (C )

f d) d =
C

f d =
C Q C

f d
A

Fix some -algebra G F . We shall now derive some properties of E [ | G ] as an operator from L1 (, F , ) to the closed subspace L1 (, G , ).
Theorem. (a) E [ | G ]
is a linear.

(b) E [ | G ] (c) (d)

If If

is continues.

g L (, G , ) BG
is a

then

E [g f | G ] = g E [f | G ]
then for all

for all

f L1 (, F , ).

-algebra

f L1 (, F , )

E [E [f | G ] | B ] = E [E [f | B ] | G ] = E [f | B ]

Let f, g L1 (, F , ) and , R, then E [f | G ] + E [g | G ] is G -measurable, and for all A G

Proof.

(a)

E [f | G ] + E [g | G ] d =
A A

E [f | G ] d + =
A A

E [g | G ] d = g d =
A A

f + g d

f d +

hence E [f + g | G ] = E [f | G ] + E [g | G ].
(b) Let f L1 (, F , ), since E [ | G ] is linear it suce to show that E [f | G ]
L1

Set A = {E [f | G ] 0}, since E [f | G ] is G -measurable it follows that A, A G so

f E [f | G ]
L1

L1 . c

=
A

E [f | G ] d + =
A Ac

E [f | G ] d = f d
Ac A

|f | d +

|f | d = f
Ac L1

f d +

(c)

Let f L1 (, F , ) and let A G , then 1A E [f | G ] is G -measurable and for

E [f | G ] d =
AB AB

all B G
1A E [f | G ] d =
B

f d =

1A f d =
B

E [1A f | G ] d
B

TIRGUL 12 - MEASURE THEORY

hence (c) holds for indicator functions. From the linearity of E [ | G ] it follows that (c) holds for linear combinations of indicator functions. Let g L (, G , ) be such that g 0, then there exist a sequence {sj } j =1 L (, G , ), of linear combinations of indicator functions, such that 0 s1 s2 j ... g and sj g pointwise. Let B G , then from the dominated convergence theorem it follows that
g E [f | G ] d = lim sj E [f | G ] d = lim sj f d = g f d
j j B B + B

hence E [g f | G ] = g E [f | G ]. For a general g write g = g g and use what we have just shown.
(d)

Since E [f | B] is G -measurable it follows that E [E [f | B] | G ] = E [f | B].

We shall now prove that E [E [f | G ] | B] = E [f | B]. Let B B, then

E [f | G ] d =
B B

f d =
B

E [f | B ] d

and so since E [f | B] is B-measurable we obtain E [E [f | G ] | B] = E [f | B].