[Math] What does it mean to integrate a Brownian motion with respect to time

probability theorystochastic-processes

I am reading about stochastic process, but could not make sense if one equation I encountered. Can anyone help me understand it?

The equation states that suppose R(s) is an interest rate process, then the discount process is $D(t)=e^{- \int_0^t R(s)ds} $.

Suppose R(t)=W(t) is a simple Brownian motion, what does $\int_0^t R(s)ds$ mean?
Is it a Lebesgue integral? Or is it an Ito's integral? How to interpret it intuitively?

This is from chapter 5 of Shreve's stochastic calculus for finance, equation 5.2.17 on page 215.

Best Answer

It might be easier to think about if we abstract a little. Brownian motion is just a continuous, time dependent random variable determined by some probability space $(X,\mathcal F, P)$. Let us view it as a function of two variables, $f(x,t)$. If $x$ is fixed, we have a continuous function, $f_x(t)=f(x,t)$, and we can compute it's integral $F(x,t)=F_x(t)=\int_0^t f_x(s) ds$, where we have just taken the usual integral of a continuous function (Riemann, Lebesgue, whatever, all the definitions agree for nice continuous functions). Thus, we have a transformation of the space of time dependent continuous random variables on $X$ (i.e., functions on $X\times \mathbb R$). The fact that we are working in particular with brownian motion doesn't enter into things.

A more complicated question is what it means to integrate a function or a random variable with respect to Brownian motion. This gets you to the Ito integral (and other similar variants) which are more subtle.