Characterising Ocone local martingales with reflections

TL;DR

This paper proves that reflection principles at certain levels are sufficient to characterize Ocone local martingales, providing a new approach and intermediate results related to the reflection principle and local martingale properties.

Contribution

It demonstrates that reflection at levels 0 and a sequence of levels is enough to ensure a process is an Ocone local martingale, answering an open question.

Findings

Reflection at levels 0 and a sequence of levels implies Ocone local martingale property.

Provides an intermediate result relating reflection principles to local martingale approximation.

Uses a different approach to establish sufficiency of reflection principles for characterizing Ocone local martingales.

Abstract

Let $M = (M_t)_{t \ge 0}$ be any continuous real-valued stochastic process such that $M_0=0$. Chaumont and Vostrikova proved that if there exists a sequence $(a_n)_{n \ge 1}$ of positive real numbers converging to 0 such that $M$ satisfies the reflection principle at levels 0, $a_n$ and $2a_n$, for each $n \ge 1$, then $M$ is an Ocone local martingale. They also asked whether the reflection principle at levels 0 and $a_n$ only (for each $n \ge 1$) is sufficient to ensure that $M$ is an Ocone local martingale. We give a positive answer to this question, using a slightly different approach, which provides the following intermediate result. Let $a$ and $b$ be two positive real numbers such that $a/(a+b)$ is not dyadic. If $M$ satisfies the reflection principle at the level 0 and at the first passage-time in $\{-a,b\}$, then $M$ is close to a local martingale in the following sense: $|\eef[M_{S \circ M}]| \le a+b$ for every stopping time $S$ in the canonical filtration of $\wwf = \{w \in \CC(\rrf_+,\rrf) : w(0)=0\}$ such that the stopped process $M_{\cdot \wedge (S \circ M)}$ is uniformly bounded.