Past exam of the stochastic differential equations course of the University of Oxford / 2025 / 2 / c / i

Fix $t<\infty$. Part (b)(i) makes $d{\mathbb{Q}}_t=Z_{t}d\mathbb{P}$ a probability measure on ${\mathcal{F}}_t$, equivalent to $\mathbb{P}$ since $Z_t>0$. Its density process on $[0,t]$ is $Z_s=\mathbb{E}[Z_t\mid {\mathcal{F}}_s]$. The Girsanov theorem, applied to the stochastic exponential with integrand $-\beta B_s$, says thatis standard Brownian motion under ${\mathbb{Q}}_t$. The required local square-integrability follows from path continuity, and the true martingale property was proved in part (b)(i).

By part (b)(ii), under ${\mathbb{Q}}_t$ the process $B$ is therefore the zero-started Ornstein-Uhlenbeck process:This identifies its full law on continuous path space, rather than just its one-time marginal. It is a centered Gaussian process, since it consists of deterministic Itô integrals against Brownian motion. For $r,s\in [0,t]$, the Itô isometry gives its covariance function:In particular, its Ornstein-Uhlenbeck transition distribution at the terminal time is