Problem 18.4 Easy Free

Brownian Exit Probability

Let (Wt)t≥0(W_t)_{t\ge0} be a standard Brownian motion started at 00. Let τ\tau be the first time WtW_t hits either −2-2 or 11. Find P[Wτ=−2]\mathbb{P}[W_\tau = -2].

Work it out, then compare with the answer.

SolutionShow the worked solution

Key idea. Brownian motion is a martingale, and it is bounded up to the exit time, so optional stopping applies.

First we show that τ<∞\tau<\infty almost surely. The process Wt2−tW_t^2-t is a martingale, so optional stopping at the bounded time τ∧t\tau\wedge t gives

E[τ∧t]=E[Wτ∧t2]≤4.\mathbb{E}[\tau\wedge t]=\mathbb{E}\big[W_{\tau\wedge t}^2\big]\le 4 .

Letting t→∞t\to\infty, monotone convergence gives E[τ]≤4\mathbb{E}[\tau]\le 4. Hence τ<∞\tau<\infty almost surely.

Next, Wτ∧tW_{\tau\wedge t} is a martingale with ∣Wτ∧t∣≤2|W_{\tau\wedge t}|\le 2, so E[Wτ∧t]=0\mathbb{E}[W_{\tau\wedge t}]=0 for every tt. As t→∞t\to\infty, Wτ∧t→WτW_{\tau\wedge t}\to W_\tau almost surely. Bounded convergence then gives E[Wτ]=0\mathbb{E}[W_\tau]=0.

Write p=P[Wτ=−2]p=\mathbb{P}[W_\tau=-2]. Since Wτ∈{−2,1}W_\tau\in\{-2,1\},

0=E[Wτ]=−2p+(1−p),0=\mathbb{E}[W_\tau]=-2p+(1-p),

so 3p=13p=1 and

P[Wτ=−2]=13\boxed{\mathbb{P}[W_\tau=-2]=\tfrac13}

Alternative. This uses symmetry and the strong Markov property.

  • Starting from 00, the path hits ±1\pm1 first with probability 12\tfrac12 each.
  • If it hits −1-1, then from there it reaches −2-2 before 00 with probability 12\tfrac12.
  • If it returns to 00 instead, the problem restarts.

Hence p=12(12+12p)p=\tfrac12\big(\tfrac12+\tfrac12p\big), which gives p=13p=\tfrac13.

Generalisation. For a,b>0a,b>0, the same argument with the levels −a-a and bb gives

P[hit −a before b]=ba+b.\mathbb{P}[\text{hit } -a \text{ before } b]=\frac{b}{a+b}.

Optional stopping applied to Wt2−tW_t^2-t also gives E[τ]=ab\mathbb{E}[\tau]=ab. Here E[τ]=2\mathbb{E}[\tau]=2.