Stochastic Calculus for a Time-changed Semimartingale and the Associated Stochastic Differential Equations

Abstract

It is shown that under a certain condition on a semimartingale and a time-change, any stochastic integral driven by the time-changed semimartingale is a time-changed stochastic integral driven by the original semimartingale. As a direct consequence, a specialized form of the Ito formula is derived. When a standard Brownian motion is the original semimartingale, classical Ito stochastic differential equations driven by the Brownian motion with drift extend to a larger class of stochastic differential equations involving a time-change with continuous paths. A form of the general solution of linear equations in this new class is established, followed by consideration of some examples analogous to the classical equations. Through these examples, each coefficient of the stochastic differential equations in the new class is given meaning. The new feature is the coexistence of a usual drift term along with a term related to the time-change.

27 pages; typos corrected

References in corpus (3)

• Fractional Calculus: Integral and Differential Equations of Fractional Order
• Fractional Cauchy problems on bounded domains
• SDEs driven by a time-changed Lévy process and their associated time-fractional order pseudo-differential equations

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