semimartingale
Semimartingales are adapted stochastic processes which can be used as integrators in the general theory of stochastic integration. Examples of semimartingales include Brownian motion
, all local martingales
, finite variation processes and Levy processes
.
Given a filtered probability space , we consider real-valued stochastic processes with time index ranging over the nonnegative real numbers.Then, semimartingales have historically been defined as follows.
Definition.
A semimartingale is a cadlag adapted process having the decomposition for a local martingale and a finite variation process .
More recently, the following alternative definition has also become common.For simple predictable integrands , the stochastic integral is easily defined for any process . The following definition characterizes semimartingales as processes for which this integral is well behaved.
Definition.
A semimartingale is a cadlag adapted process such that
is bounded in probability for each .
Writing for the supremum norm of a process , this definition characterizes semimartingales as processes for which
in probability as for each , where is any sequence of simple predictable processes satisfying . This property is necessary and, as it turns out, sufficient for the development of a theory of stochastic integration for which results such as bounded convergence holds.
The equivalence of these two definitions of semimartingales is stated by the Bichteler-Dellacherie theorem.
A stochastic process taking values in is said to be a semimartingale if is a semimartingale for each .