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Q2: Stochastic Calculus

Consider a standard Brownian motion W(t) and another stochastic process defined by X(t) being the integral from 0 to t of W(s) with respect to s. Which of the following statements about X(t) is true?

 

🔘 A. X(t) is a martingale.
🔘 B. X(t) has continuous paths.
🔘 C. The quadratic variation of X(t) over [0, t] is t^3/3.
🔘 D. X(t) is a standard Brownian motion.
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Given the stochastic process X(t) defined as the integral from 0 to t of W(s) with respect to s, where W(t) is a standard Brownian motion:
🔘 A. X(t) has continuous paths, as it is the time-integrated version of a standard Brownian motion W(t).
🔘 B. X(t) is not a martingale. Its expected future increments, given its past, are not constant.
🔘 C.The quadratic variation of X(t) over [0, t] is not t^3/3. Even though the quadratic variation of W(t) is t, this doesn't directly apply to its integral X(t).
🔘 D. X(t) is not a standard Brownian motion. Instead, it is the integral of a Brownian motion over time, resulting in a different kind of process.
Therefore, the correct answer is:
🔘 B. X(t) has continuous paths.

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About the Author

 

 Florian Campuzan is a graduate of Sciences Po Paris (Economic and Financial section) with a degree in Economics (Money and Finance). A CFA charterholder, he began his career in private equity and venture capital as an investment manager at Natixis before transitioning to market finance as a proprietary trader.

 

In the early 2010s, Florian founded Finance Tutoring, a specialized firm offering training and consulting in market and corporate finance. With over 12 years of experience, he has led finance training programs, advised financial institutions and industrial groups on risk management, and prepared candidates for the CFA exams.

 

Passionate about quantitative finance and the application of mathematics, Florian is dedicated to making complex concepts intuitive and accessible. He believes that mastering any topic begins with understanding its core intuition, enabling professionals and students alike to build a strong foundation for success.