Detailed Solutions

Practice Question Paper

Problem 1
(a) For Brownian motion:
E[W (t)] = 0, Var(W (t)) = t
Thus:
E[W (2)] = 0, Var(W (2)) = 2
(b) Using independent increments:

W (3) − W (1) ∼ N (0, 3 − 1) = N (0, 2)

(c)
E[W (1)W (3)] = E[W (1)(W (1) + W (3) − W (1))]
= E[W 2 (1)] + E[W (1)(W (3) − W (1))]
Second term = 0 (independent increments), hence:

=1

(d)
W (1) ∼ N (0, 1) ⇒ P (W (1) ≤ 0) = 0.5
(e)
E[M (t)] = E[W 2 (t)] − t
=t−t=0

Problem 2
(a)
X(t) = 2W (t)
E[X(t)] = 2E[W (t)] = 0
Var(X(t)) = 4t
(b)
X(t) ∼ N (0, 4t)

1
 (c)
Z t
E[Z(t)] = E[W (s)]ds = 0
0
(d) "Z
t 2 #
Var(Z(t)) = E W (s)ds
0
Z tZ t
= E[W (s)W (u)]dsdu
0 0
Z tZ t
t3
= min(s, u)dsdu =
0 0 3
(e) Quadratic variation: X
(W (tk+1 ) − W (tk ))2 → t

Problem 3
(a)
E[X] = 1 · P (A) + 0 · P (Ac ) = P (A)
(b)
Var(X) = E[X 2 ] − E[X]2
= P (A) − P (A)2 = P (A)(1 − P (A))
(c)
E[X 2 ] = P (A)
(d) Since X ∈ {0, 1}:
X2 = X
(e) Expectation equals probability of event.

Problem 4
(a)
ωn 1
0≤ n
≤ n ⇒0≤X≤1
2 2
(b)
X E[ωn ] X p
E[X] = = =p
2n 2n
(c)
X p(1 − p)
Var(X) =
4n
(d) When p = 12 , distribution is uniform on [0, 1].
(e) For p ̸= 12 , no simple density exists.

2
Problem 5
(a)
P (U ≤ a) = a
(b)
f (x) = 1, 0≤x≤1
(c)
1
E[U ] =
2
(d)
1
Var(U ) =
12
(e)
P (U = x) = 0

Problem 6
(a)
P (X ≤ x) = P (− ln U ≤ x) = P (U ≥ e−x ) = 1 − e−x
(b)
f (x) = e−x
(c)
E[X] = 1
(d)
Var(X) = 1
(e) Exponential distribution.

Problem 7
(a)
f (x) = F ′ (x) = 2x
(b)
P (0.5 ≤ X ≤ 1) = 1 − 0.25 = 0.75
(c)
2
E[X] =
3
(d)
1
Var(X) =
18
(e)
Z 1
2xdx = 1
0

3
Problem 8
(a)
E[X + Y ] = 5
(b)
Var(X + Y ) = 5
(c)
E[XY ] = 6
(d)
Cov(X, Y ) = 0
(e) Yes, uncorrelated.

Problem 9
(a)
Z 1
2xdx = 1
0
(b)
2
E[X] =
3
(c)
1
E[X 2 ] =
2
(d)
1
Var(X) =
18
(e) Expectation is area under xf (x).

Problem 10
(a)
W (4) ∼ N (0, 4)
(b)
P (W (4) ≤ 0) = 0.5
(c)
Var(W (2) − W (1)) = 1
(d)
E[W 2 (3)] = 3
(e)
2W (1) ∼ N (0, 4)