Problem 18.1 Easy Free

Variance of a Sum of Brownian Values

Let WtW_t be a standard Brownian motion. Compute Var⁡(W1+W2)\operatorname{Var}(W_1+W_2).

Work it out, then compare with the answer.

SolutionShow the worked solution

Key idea. Write the sum in terms of independent increments.

Since W1+W2=2W1+(W2−W1)W_1+W_2 = 2W_1 + (W_2-W_1), and the increment W2−W1W_2-W_1 is independent of W1W_1,

Var⁡(W1+W2)=4Var⁡(W1)+Var⁡(W2−W1).\operatorname{Var}(W_1+W_2) = 4\operatorname{Var}(W_1) + \operatorname{Var}(W_2-W_1).

Here W1∼N(0,1)W_1\sim\mathcal{N}(0,1) and W2−W1∼N(0,1)W_2-W_1\sim\mathcal{N}(0,1), so the variance is 4⋅1+1=54\cdot 1 + 1 = 5.

Alternative. Use Cov⁡(Ws,Wt)=min⁡(s,t)\operatorname{Cov}(W_s,W_t)=\min(s,t):

Var⁡(W1+W2)=Var⁡(W1)+Var⁡(W2)+2Cov⁡(W1,W2)=1+2+2⋅1=5.\operatorname{Var}(W_1+W_2) = \operatorname{Var}(W_1)+\operatorname{Var}(W_2)+2\operatorname{Cov}(W_1,W_2) = 1+2+2\cdot 1 = 5.

In fact W1+W2∼N(0,5)W_1+W_2\sim\mathcal{N}(0,5), because it is a linear combination of jointly Gaussian variables.

Var⁡(W1+W2)=5\boxed{\operatorname{Var}(W_1+W_2)=5}