Characterising Ocone local martingales with reflections

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.