Stochastic Calculus for a Time-Changed Semimartingale and the Associated Stochastic Differential Equations

Kei Kobayashi ()
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Kei Kobayashi: Tufts University

Journal of Theoretical Probability, 2011, vol. 24, issue 3, 789-820

Abstract: Abstract It is shown that under a certain condition on a semimartingale and a time-change, any stochastic integral driven by the time-changed semimartingale is a time-changed stochastic integral driven by the original semimartingale. As a direct consequence, a specialized form of the Itô formula is derived. When a standard Brownian motion is the original semimartingale, classical Itô stochastic differential equations driven by the Brownian motion with drift extend to a larger class of stochastic differential equations involving a time-change with continuous paths. A form of the general solution of linear equations in this new class is established, followed by consideration of some examples analogous to the classical equations. Through these examples, each coefficient of the stochastic differential equations in the new class is given meaning. The new feature is the coexistence of a usual drift term along with a term related to the time-change.

Keywords: Time-change; Semimartingale; Stochastic calculus; Stochastic differential equation; Time-changed Brownian motion; 60H05; 60H10; 35S10 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1007/s10959-010-0320-9

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