Past exam of the probability, measure and martingales course of the University of Oxford / 2021 / 1 / b / iv

The L2-bounded martingale convergence theorem states that a martingale with ${\sup }_n\mathbb{E}|X_n{|}^2<\infty$ converges both almost surely and with convergence in L2 to a square-integrable random variable. Its hypotheses hold because $0<X_n<1$. Thus there is $X_{\infty }\in [0,1]$ almost surely with both kinds of convergence. Alternatively, the martingale convergence theorem gives the almost sure convergence, and the bound $|X_n-X_{\infty }{|}^2\le 1$ gives convergence in L2 by the dominated convergence theorem.^[ref]

The calculation of the conditional expectation of the square is especially informative. The martingale property makes the cross term vanish in the square expansion, soSubtracting this from $\mathbb{E}[X_{n+1}\mid {\mathcal{F}}_n]=X_n$ givesTaking expected values and iterating provesBy bounded convergence theorem, $\mathbb{E}[X_{\infty }(1-X_{\infty })]=0$. The random variable inside this expected value is nonnegative, so it is zero almost surely; on $[0,1]$ this forces $X_{\infty }\in \{0,1\}$. Again by bounded convergence theorem, $\mathbb{E}{X}_{\infty }={\lim }_n\mathbb{E}{X}_n=x$. HenceThis is the Bernoulli polarization martingale with update size $1/2$. It also has an exact mean squared error: the terminal representation $X_n=\mathbb{E}[X_{\infty }\mid {\mathcal{F}}_n]$ and the equality case for conditional second moments give