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E[X ] E[X0 ],
for a supermartingale.
1.1 Remark
Under condition (c) it is possible that = happens with
positive probability. On this event X is dened as the
almost surely existing pointwise limit of X, see the proof
below for details.
2 Applications
The optional stopping theorem can be used to prove
the impossibility of successful betting strategies for
a gambler with a nite lifetime (which gives condition (a)) and a house limit on bets (condition (b)).
Suppose that the gambler can wager up to c dollars
on a fair coin ip at times 1, 2, 3, etc., winning his
wager if the coin comes up heads and losing it if
the coin comes up tails. Suppose further that he can
quit whenever he likes, but cannot predict the outcome of gambles that haven't happened yet. Then
the gamblers fortune over time is a martingale, and
the time at which he decides to quit (or goes broke
and is forced to quit) is a stopping time. So the theorem says that E[X] = E[X0 ]. In other words, the
gambler leaves with the same amount of money on
average as when he started. (The same result holds
if the gambler, instead of having a house limit on
individual bets, has a nite limit on his line of credit
or how far in debt he may go, though this is easier to
show with another version of the theorem.)[1]
Statement of theorem
E[X ] E[X0 ],
5
n martingale from the examples section. If is the
time at which X rst reaches m, then 0 = E[Y 0 ] =
E[Y] = m2 E[]. This gives E[] = m2 .
E[M ] = E[|X0 |] +
EXTERNAL LINKS
]
[ [
]
E E |Xs+1 Xs |Fs 1{ >s}
|
{z
}
s=0
c 1{ >s} (b) by a.s.
E[|X0 |] + c
P( > s)
s=0
= E[|X0 |] + c E[ ] < ,
where a representation of the expected value of nonnegative integer-valued random variables is used for the
last equality.
Therefore, under any one of the three conditions in the
theorem, the stopped process is dominated by an integrable random variable M. Since the stopped process X
Proof
Xt = X0 +
t1
(Xs+1 Xs ),
t N0 ,
Similarly, if X is a submartingale or supermartingale, respectively, change the equality in the last two formulas to
the appropriate inequality.
s=0
4 References
M := |X0 |+
|Xs+1 Xs | = |X0 |+
s=0
[1] http://www.scribd.com/doc/28125042/
Unit-Betting-System
s=0
5 External links
Doobs Optional Stopping Theorem
E[M ] = E[|X0 |] +
[
]
E |Xs+1 Xs | 1{ >s}
s=0
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6.3
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