Local time and $\int_0^t \operatorname{sgn}(B_t-x)\,dB_t$

brownian motionmartingalesprobabilitystochastic-calculus

I would like to compute the expectation of the stopped local time $L_t^x$ with underlying Brownian Motion $B_t$ with $B_0=x$. Set

$T_a=\inf\{ s \geq 0 \mid B_s=a\}$
with $y<x<a$.

The target of interest is
$\mathbb{E}_x[L_{T_a}^y]$. I would like apply optional stopping theorem. We have by Tanaka's Formula
$$|B_t-y|-|B_0-y|=\int_0^t \operatorname{sgn}(B_s-y)\,dB_s+L_t^y.$$

But for this I have to prove $\int_0^{T_a} \operatorname{sgn}(B_t-y)\,dB_t$ is bounded.

Nevertheless assuming this. We obtain
$|a-y|-|x-y|=\mathbb{E}_x[L_{T_a}^y]$.

We have:
$|a-y|-|x-y|=a-y-|x-y|=a-x$.

So I'm not very sure about this computation. Thanks for every comment

There is some other Question which arises. If we have the case $x<y<a$ we would obtain

$\mathbb{E}_x[L_{T_a}^y]=a+x-2y$. For example for $x=0$ and $y=a3/4$ we get

$\mathbb{E}_x[L_{T_a}^y]=-a/2$

so there is a contradiction. But where is the mistake?

It seems the assumption fails.
So how one can handle
$\mathbb{E}_x[L_y^{T_a}]$?.

It is quite strange here I used the same
expectation of stopped local time
and the result was true.

I know the Formula expectation of stopped local time
holds true nevertheless my mistake (see site 171, Diffusion process and their sample path).
Now let $a <x<y<b$ then we have

$\mathbb{E}_x[L_y^{T_a \wedge T_b}]=2 \dfrac{(x-a)(b-y)}{(b-a)} \leq \mathbb{E}_x[L_y^{T_a }] $

because the local time is increasing.
Now, we have
$\mathbb{E}_x[L_y^{T_a \wedge T_b}]
=2 \dfrac{(x-a)(b-y)}{(b-a)}= 2 \dfrac{b(x-a)(1-y/b)}{b(1-a/b)}= 2 \dfrac{(x-a)(1-y/b)}{(1-a/b)} \rightarrow 2 {(x-a)}$
for $b \rightarrow \infty$.
Now, the continuity of the local time, dominated convergence one obtains
$\mathbb{E}_x[L_y^{T_a}]=2(x-a)$.

We also have
$\mathbb{E}_x[L_y^{T_a \wedge T_b}]=2 \dfrac{a(x/a-1)(b-y)}{a(b/a-1)} =2 \dfrac{(x/a-1)(b-y)}{(b/a-1)} \rightarrow 2(b-y)$ for $a \rightarrow -\infty$.
This leads to
$\mathbb{E}_x[L_y^{ T_b}]=2(b-y)$
By the way.
I hope this computation is on the right way.
I need this to compute the walk Dimension for gap diffusions.

Best Answer

Because the integrand is bounded, the stochastic intergal is uniformly integrable. So $\int_0^{T_a}\operatorname{sgn}(B_s-y)\,dB_s$ has mean zero. The rest of your computation is fine.

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