[Math] Continuous local martingale of finite variation is constant

martingalesstochastic-processes

Is a continuous local martingale $M$ of finite variation constant?

We know that there exists a sequence of stopping times $T_n\nearrow \infty$ a.s. as $n\to\infty$ such that the stopped process $M^{T_n}$ is a continuous bounded martingale. And $M^{T_n}$ has finite variation, because $M$ has finite variation.

Since if $X$ is a continuous bounded martingale with finite variation, then $X=X_0$ a.s. So $M_t^{T_n}=M_0^{T_n}$ a.s. $\forall t\ge 0$ and by letting $n\to\infty$ we obtain that $M\equiv M_0$.

  1. Is my reasoning correct?

  2. The statement "continuous bounded martingale with finite variation implies constant" is a lemma from my notes, but we did not prove it. How would one prove it?

Best Answer

Your intuition is good, but there are some technicalities you should be careful about. WLOG $M_0 = 0$. Start by assuming $M$ is a continuous martingale of bounded variation. Then if $B$ is a bound on the variation of $M$, and $(t_i)$ is a partition of $[0,t]$,

$$ E[M_t^2] = E\sum (M_{t_{i+1}}-M_{t_i})^2 \leq B E[\sup_i|M_{t_{i+1}}-M_{t_i}|]. $$

Since $M$ is continuous the supremeum tends to $0$ as the partition size goes to $0$. Moreover, the supremum is dominated by $B$, and hence dominated convergence tells us that $E[M_t^2] = 0$, in particular $M_t=0$ a.s. Let $t$ run over rationals and use the continuity of $M$ to conclude that $M=0$.

Next, if $M$ is a continuous local martingale, take a localizing sequence of stopping times $(\tau_n)$. We then find that $M^{\tau_n}_t = 0$ for all $n$, and so taking the limit in $n$ gives $M_t = 0$ a.s. Again let $t$ range over rationals.

Related Question