To show martingale, what other conditions do you need to check if the process has zero drift

brownian motionmartingalesstochastic-calculusstochastic-processes

Given a Brownian motion $(W_t)_t,$ to show that $W_t^3$ is not a martingale, one usually applies Ito's lemma and show that the SDE satisfies by $W_t^3$ has no drift term, that is, no $dt$ term.

In Mark Joshi et al. Quant Jon Interview, they ask What other conditions do you need to check if the process has zero drift?

I have no idea how to answer this question.

Best Answer

If an Ito process has no drift, then we have a process of the type $I_t = \int_0^t H_u dW_u,$ (i.e the stochastic differential is $dI_u = H_u dW_u$). The previous integral is defined for integrand processes $H$ such that $H$ is $\{ \mathscr{F}_t \}$-adapted and $\int_0^t |H_u|^2 du < \infty $ a.s for every $t>0.$ But $I_t$ defined like that, is ("only") a local martingale. For $I_t$ to be a (true) martingale we have to check that $E \int_0^t |H_u|^2 du < \infty $ a.s for every $t>0.$