Planar Diffusions with Rank-Based Characteristics: Transition Probabilities, Time Reversal, Maximality and Perturbed Tanaka equations

Details Planar Diffusions with Rank-Based Characteristics: Transition Probabilities, Time Reversal, Maximality and Perturbed Tanaka equations Planar Diffusions with Rank-Based Characteristics: Transition Probabilities, Time Reversal, Maximality and Perturbed Tanaka equations

2011-08-19

arxiv.org/abs/1108.3992v3

Mathematics

Probability

40 pages, 2 figures

Scientific paper

We construct a planar diffusion process whose infinitesimal generator depends only on the order of the components of the process. Speaking informally and a bit imprecisely for the moment, imagine you run two Brownian-like particles on the real line. At any given time, you assign positive drift g and diffusion {\sigma} to the laggard; and you assign negative drift -h and diffusion {\rho} to the leader. We compute the transition probabilities of this process, discuss its realization in terms of appropriate systems of stochastic differential equations, study its dynamics under a time reversal, and note that these involve singularly continuous components governed by local time. Crucial in our analysis are properties of Brownian and semimartingale local time; properties of the generalized perturbed Tanaka equation which we study here in detail; and those of a one-dimensional diffusion with bang-bang drift. We also show that our planar diffusion can be represented in terms of a process with bang-bang drift, its local time at the origin, and an independent standard Brownian motion, in a form which can be construed as a two-dimensional analogue of the stochastic equation satisfied by the so-called skew Brownian motion.

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