Chapter 9 - Question 9.1.

Hi,

Could someone please explain why the 2Y0Y1Bt1(Bt - Bt1) term disappears at the end of the solution for Question 9.1 on page 37 please? Thanks.

Greg

 

Because E(Bt-Bt1)=0 (as they are Gaussian increments)

 

Thanks for replying, but what about the Bt1 outside the bracket? This isn't a constant is it? I understand that E(Bt-Bt1) = 0 but what about Bt1(Bt-Bt1)?

 

Page 3 of Chapter 8 : 1.2(1) says "Bt-Bs is independent of Br, r<=s whenever s<t." Applying same here, Bt-Bt1 is independent of Bt1. So E(Bt1(Bt-Bt1))=E(Bt1)*E(Bt-Bt1)=0.

 

Ah I see, thanks!