Past exam of the stochastic differential equations course of the University of Oxford / 2025 / 3 / c / Solution

Let $K={\sup }_{x}f(x)<\infty$ and let $C$ be a Lipschitz constant for $f$. Sinceboth coefficients $f$ and $-f^2/2$ are bounded and globally Lipschitz. The global existence theorem for stochastic differential equations with Lipschitz coefficients gives a unique global strong solution of a stochastic differential equation.

The same Itô formula cancellation as before givesFor $S=T_{-a}\wedge T_b$, the stopped exponential is bounded between $e^{-a}$ and $e^b$. Continuity and strict positivity of $f$ giveThe Itô isometry therefore yieldsThe monotone convergence theorem proves $\mathbb{E}S<\infty$. The bounded optional stopping argument is now identical to part (b)(iii), and givesPassing from level hitting to strict exceedances as in part (b)(iv),No global positive lower bound on $f$ was needed: compact-interval positivity suffices for each exit argument. The law is independent of the particular $f$ because the scale function is always $s(x)=e^x$: its infinitesimal generator satisfiesThis is the exponential scale function for a drift tied to diffusivity. Changing $f$ changes how quickly the path is traversed, but leaves these boundary probabilities and the maximum law unchanged.