Solution

ID: past-exam-of-the-probability-statistics-and-options-ii-course-of-the-university-of-oxford/2008/p/3/b/solution

Interpret the weighted function space as measurable functions modulo equality almost everywhere, so the integral form is a genuine inner product. Assume . If the residual is orthogonal to , then for ,
Thus is a best approximation. Conversely, if it is best, take any and vary through . The polynomial
has a minimum at , so its derivative there vanishes. Hence for every . The same Pythagorean identity proves uniqueness of the best approximation.

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