THEORY PROBAB. APPL.

c 2004 Society for Industrial and Applied Mathematics

Vol. 48, No. 2, pp. 288303 Translated from Russian Journal
MARTINGALES AND FIRST-PASSAGE TIMES FOR
ORNSTEINUHLENBECK PROCESSES WITH
A JUMP COMPONENT

A. NOVIKOV

(Translated by the author)

Dedicated to the Centennial of A. N. Kolmogorov
Abstract. Using martingale technique, we show that a distribution of the rst-passage time
over a level for the OrnsteinUhlenbeck process with jumps is exponentially bounded. In the case
of absence of positive jumps, the Laplace transform for this passage time is found. Further, the
maximal inequalities are also given when the marginal distribution is stable.
Key words. exponential martingales, rst-passage times, OrnsteinUhlenbeck process, Laplace
transform, moment Walds identity, maximal inequalities, stable distribution
DOI. 10.1137/S0040585X97980403
1. Introduction. Let X
t
, t 0, solve a linear stochastic equation
X
t
= X
0

_
t
0
X
s
ds +Y
t
, t 0, (1)
where {Y
t
, t 0} is a Levy process (that is, a process with independent homogeneous
increments; see, e.g., [1], [2]) and X
0
is a nonrandom initial value.
We consider here only the stable case, that is, when > 0. In the literature,
this process is cited as an important example of a dierent class of random processes:
shot noise processes (see, e.g., [3]), ltered Poisson processes [4], generalized Ornstein
Uhlenbeck (OU) processes (see [5], [6], and [7]), etc.
One of the problems for models of that sort is to determine a distribution, or
moments for the one-sided passage time

b
= inf{t > 0: X
t
> b}, b > X
0
.
Dierent approaches were used for studying this problem: integral equations (see,
e.g., [1], [10], and [21]); martingale techniques ([7], [8], and [9]), etc. In this paper, we
also apply the martingale technique, namely a special parametric family of martingales
(Theorem 1). We nd the Laplace transform of
b
provided that the Levy process Y
t
possesses negative jumps only (Theorem 2; under somewhat less general conditions
this result is known from [7] and [8]; see also Remark 3).
When the process Y
t
has positive jumps, the Laplace transform of
b
, as well as
its moments, are unknown, except for exponential distribution of positive jumps [10],
or uniform distribution [22] of ones.

Received by the editors January 23, 2003. This work was supported by ARC Large Grant
A0010474.
http://www.siam.org/journals/tvp/48-2/98040.html

Steklov Mathematical Institute RAN, Gubkin St. 8, 119991 Moscow, Russia, and Department
of Mathematical Sciences, University of Technology, P.O. Box 123, Broadway, Sydney, NSW 2007,
Australia (Alex.Novikov@uts.edu.au).
288
MARTINGALES AND FIRST-PASSAGE TIMES 289
In this paper, we prove that the distribution of
b
is exponentially bounded for
all b under the assumption that the process Y
t
has diusion component or positive
jumps (Theorem 3). This result is known from [9] under the additional assumption
of niteness of the mathematical expectation of Y
t
. Moreover, with the help of the
moment Wald identity (section 4), we derive a lower bound for the expectation E(
b
).
Notice that the moment Wald identity can also be used for deriving asymptotic ex-
pansions of E
b
as b (see [22]). In section 5, we use this moment identity for
deriving the moment inequalities for sup
t
(X
t
) even for an arbitrary stopping time
provided that Y
t
obeys one-sided stable distribution, i.e., in the absence of positive
jumps (Theorem 5). The proof of this result uses techniques from [11], where the
moment inequalities for sup
t
|X
t
| are given for the Gaussian OU-process.
2. An exponential martingale family. We assume that the Levy process Y
t
and all other random objects are dened on a probability space (, F, P) supplied by
a ltration (including the assumption of right-continuity, etc.).
Recall that any Levy process
Y
t
= mt +W
t
+Z
t
, (2)
where m and are constants, W
t
is a standard Brownian motion, and Z
t
is a dis-
continuous process with independent homogeneous increments and paths from the
Skorokhod space.
A (unique) solution of (1) has the following representation in terms of stochastic
integrals with respect to W
t
and Z
t
:
X
t
= X
0
e
t
+e
t
_
t
0
e
s
dY
s
=
m

+
_
X
0

m

_
e
t
+e
t
_
t
0
e
s
dW
s
+e
t
_
t
0
e
s
dZ
s
. (3)
It is well known that the jump component Z
t
of the Levy process can be represented
in terms of integrals with respect to a Poisson random measure p(dx, ds) (generated
by jumps of Y
t
), and a Levy canonical measure of jumps (dx):
Z
t
=
_
t
0
_
xI{|x| < 1}
_
p(dx, ds) (dx) ds

+
_
t
0
_
xI
_
|x| 1
_
p(dx, ds). (4)
Here I{ } is an indicator function and the Levy measure (dx) must satisfy the
following condition:
_
min(x
2
, 1) (dx) < . (5)
In what follows we dene a class of martingales as a parametric family of X
t

for the special case when the process Y

t
obeys all exponential moments:
Ee
uYt
= exp
_
t(u)
_
< for all u 0, (6)
where, as is well known [1], the cumulant function (u) has the following represen-
tation:
(u) = mu +

2
2
u
2
+
_
_
e
ux
uxI{|x| < 1} 1
_
(dx).
290 A. NOVIKOV
Additionally, we suppose that
Elog(1 +Y

1
) < (7)
(henceforth, a
+
= max(a, 0), a

= (a)
+
). We shall see that this condition is
sucient and necessary for niteness of the following function (u), which will be
used in a denition of martingales below:
(u) =
1

_
u
0
v
1
(v) dv =
1

_
mu +

2
4
u
2
+I
1
(u) +I
2
(u)
_
, u 0, (8)
where
I
1
(u) =
_
u
0
v
1
_ _
(e
vx
vxI{|x| < 1} 1)I{x > 1} (dx)
_
dv,
I
2
(u) =
_
u
0
v
1
_ _
(e
vx
1)I{x 1} (dx)
_
dv.
By conditions (5) and (6) the integral I
1
(u) is well dened and nite. It is convenient
to express the integrand in I
2
(u) as follows:
_
u
0
v
1
(e
vx
1) dv =
_
xu
0
y
1
(e
y
1) dy
=
_
1
0
y
1
(1 e
y
) dy
_
xu
1
y
1
(1 e
y
) dy
= EulerGamma log(xu)
_

xu
y
1
e
y
dy,
where EulerGamma is the Euler constant (in notation of the package Mathemat-
ica [23]):
EulerGamma =
_
1
0
y
1
(1 e
y
) dy
_

1
y
1
e
y
dy
(see also [12, formula 8.367.12]). Therefore,
I
2
(u) = D
_ _
log(u) +
_

xu
y
1
e
y
dy
_
I{x 1} (dx), (9)
where D =
_
[EulerGamma + log(x)

I{x 1} (dx). Obviously, (7) provides

the existence of integral
_
log(x)I{x 1} (dx) so that, by (5), I
2
(u) is well
dened and nite if and only if (7) holds true.
For denition of the above-mentioned parametric martingale family we introduce
also the following martingale function
H(, x) =
_

0
e
ux(u)
u
1
du, > 0.
The following simple estimate for an asymptotic limit of the function (u) will
allow us to nd simple conditions for niteness of the function H(, x).
Lemma 1. Let conditions (6) and (7) hold. If
> 0, or ((0, )) > 0, or
_
|x| I{1 < x < 0} (dx) = , (10)
MARTINGALES AND FIRST-PASSAGE TIMES 291
then
lim
u
(u)
u
= . (11)
If
= 0, ((0, )) = 0,
_
|x|I{1 < x < 0} (dx) < , (12)
then
lim
u
(u)
u
=
1

_
m+
_
|x|I{1 < x < 0} (dx)
_
. (13)
Proof. From (9) it follows that
I
2
(u) = log(u)
_
(, 1]
_
+O(1), u . (14)
By the inequality e
z
zI{|z| < 1} 1 z
2
I{z > 0}/2, we nd that
I
1
(u)
u
2
4
_
x
2
I{x > 0} (dx),
and, hence,
(u) mu +
u
2
4
_

2
+
_
x
2
I{x > 0} (dx)
_
+O(log(u)).
So, if > 0 or ((0, )) > 0, then by this lower bound we obtain (11).
Now assume (12). Then
(u) = mu +
_ _ _
u
0
e
v x
v x 1
v
dv
_
I{1 < x < 0} (dx) +I
2
(u).
By virtue of (14), the integral I
2
(u) is of the order O(log(u)). Note that for x < 0
and v > 0 the following inequalities hold:
0
e
vx
vx 1
v
x.
Taking into account the assumption
_
|x|I{1 < x < 0} (dx) < , the dominated
convergence theorem, and the lHospital rule, we nd
lim
u
1
u
_
u
0
_
e
v x
v x 1
v
dv I{1 < x < 0} (dx) =
_
|x|I{1 < x < 0} (dx).
Thus, (13) holds.
If
_
|x|I{1 < x < 0} (dx) = , the same arguments lead to the following
estimate with any > 0:
lim
u
(u)
u

1

_
m+
_
|x|I{1 < x < } (dx)
_
.
Letting here 0, we obtain (11). Lemma 1 is proved.
292 A. NOVIKOV
Notice that by Lemma 1 the function H(, x) is nite for any real x if condi-
tion (10) holds or if
= 0, ((0, )) = 0, m+
_
|x|I{1 < x < 0} (dx) > x. (15)
Remark 1. If
= 0, ((0, )) = 0, m+
_
|x|I{1 < x < 0} (dx) X
0
, (16)
then for b > X
0
the stopping time
b
= .
Indeed, the condition ((0, )) = 0 implies that the process X
t
does not have
any positive jumps at all. So, since the continuous part of X
t
is not smaller than X
t
itself, by (3), (4), and (16) we have the following deterministic upper bound:
X
t

m

+
_
X
0

m

_
e
t
+e
t
_
t
0
e
s
_ _
|x| I{1 < x < 0} (dx)
_
ds
=
1

_
m+
_
|x|I{1 < x < 0} (dx)
_
+
_
X
0

m

_
|x|I{1 < x < 0} (dx)
_
e
t
X
0
.
Thus, under b > X
0
we have sup
t>0
X
t
< b and so
b
= .
Theorem 1. Let conditions (6) and (7) hold. Further, assume (10) or (15) with
x = X
0
hold. Then
_
e
t
H(, X
t
), t 0
_
, > 0,
is the martingale.
Proof. Using standard tools of stochastic analysis (see, e.g., [1] or [13]) we obtain
that, under conditions (6) and (7), the process

t
(u) = exp
_
ue
t
X
t

_
t
0
(ue
s
) ds
_
(17)
is a martingale. The fact that this process is a local martingale can be checked using
representation (3) and the generalized It o formula. The uniform integrability (under
assumption (6)), and, hence, the validity of the martingale property, is a consequence
of the exponential identity
Eexp
__
t
0
f(s) dY
s
q
t
_
= 1,
where
q
t
= m
_
t
0
f(s) ds +

2
2
_
t
0
f
2
(s) ds +
_
t
0
_
_
e
f(s) x
f(s) xI{|x| < 1} 1
_
(dx) ds
and f(s) is a bounded deterministic function.
Note that
_
t
0
(ue
s
) ds =
1

_
ue
t
u
(v)
v
dv = (ue
t
) (u).
MARTINGALES AND FIRST-PASSAGE TIMES 293
Since E(
t
(u)) =
t
(0) = exp{uX
0
}, from the latter formula it follows that
Eexp{uX
t
} = exp
_
uX
0
e
t
+(u) (ue
t
)
_
. (18)
Applying the Fubini theorem and then introducing a new variable z = ue
t
, we
obtain
E(H(, X
t
)) =
_

0
E(e
uXt(u)
) u
1
du
=
_

0
e
uX0e
t
(ue
t
)
u
1
du = e
t
H(, X
0
) < . (19)
The niteness of the function H(, X
0
) is due to Lemma 1 and condition (10) or (15)
with x = X
0
.
By (17), for all s t we have
E
_

t
(u) | F
s
_
=
s
(u) a.s.
Now, integrating both sides of the above equality with respect to Q(du) =
e
(u)
u
1
du ( > 0), with > 0, over the interval (0, ) we obtain
_

0
E(
t
(u) | F
s
) e
(u)
u
1
du =
_

0

s
(u) e
(u)
u
1
du
= e
s
_

0
e
ue
s
Xs(ue
s
)
(ue
s
)
1
d(ue
s
) = e
s
H(, X
s
). (20)
Hence, by the Fubini theorem, applied to the left-hand side of (20), we obtain the
required martingale property
E
_
e
t
H(, X
t
) | F
s
_
= e
s
H(, X
s
) a.s.
Theorem 1 is proved.
Remark 2. The idea of constructing a special parametric martingale family is
not new. A similar method was used in the papers [14] and [15] for boundary crossing
problems related to a Brownian motion, and in the papers [7] and [16] for boundary
crossing problems related to a stable Levy process.
By the optional stopping theorem and Theorem 1 we have the following identity:
For any stopping time and xed t <
E
_
e
min(,t)
H(, X
min(,t)
)

= H(, X
0
), > 0, (21)
we apply (21) to derive an explicit formula for the Laplace transform of
b
provided
that the process Y
t
does not have positive jumps. Before proving this formula we have
to introduce further notation. Set

H(, x) =
_

0
e
ux

(u)
u
1
du, > 0,
with
(u) = mu +

2
u
2
4
+I
1
(u)
_ _
log(u) +
_

xu
e
y
y
dy
_
I{x 1} (dx).
294 A. NOVIKOV
If (7) holds, then, by (9) and (8),

H(, x) = exp{D
1
} H(, x),
where the constant D is dened above. Notice also that

H(, x) is nite even if (7)
fails.
Theorem 2. Let ((0, )) = 0. If
> 0 or m+
_
|x| I{1 < x < 0} (dx) > b, (22)
then P{
b
< } = 1 and
Ee

b
=

H(, X
0
)

H(, b)
, > 0.
Proof. First we assume that (7) holds and consider identity (21) with =
b
. By
Lemma 1 and (22), |H(, x)| < , x b. Under the absence of positive jumps, on
the set {
b
< t} we have X

b
= b and, on the set {
b
t}, we have X
t
b for all
t 0. Hence, H(, X
min(
b
,t)
) H(, b) < and, by the Fatou lemma, we can pass
to the limit as t under the expectation in the left-hand side of (21). As the
result, we get
E[I{
b
< }e

b
] =
H(, X
0
)
H(, b)
, > 0. (23)
It is easy to verify, integrating by parts, that
lim
0
H(, x) = 1. (24)
Passing to the limit as 0 in (23), by the Fatou lemma we get P{
b
< } = 1.
Since
H(, X
0
)
H(, b)
=

H(, X
0
)

H(, b)
, > 0,
then, by (23) under (7), the statement of Theorem 1 is valid under the imposed
assumption (7). If (7) fails, we may consider the OU-process X
N
t
, which solves (1)
with Y
t
replaced by the truncated Levy process
Y
N
t
= mt +W
t
+Z
N
t
,
where
Z
N
t
=
_
t
0
_
xI{1 < x < 0}
_
p(dx, ds) (dx) ds

+
_
t
0
_
xI{N x 1} p(dx, ds).
Denote by
N
b
the corresponding crossing time of the level b and by

H
N
(, x) the
corresponding martingale function. Obviously,
N
b

b
a.s. as N . Notice
that (7) holds for Y
N
t
and we have
Ee

N
b
=

H
N
(, X
0
)

H
N
(, b)
, > 0,
MARTINGALES AND FIRST-PASSAGE TIMES 295
where the function

H
N
(, x) is dened above. Now it is easy to check that
lim
N

H
N
(, x) =

H(, x) for any x b.
Theorem 2 is proved.
Remark 3. In the case when (dx) 0 and > 0 the process X
t
is Gaussian
and, of course, the result of Theorem 2 for this case is well known (see, e.g., [17]).
Note also that for this special case it is possible to derive an analytical inversion
of the Laplace transform of
b
based on the representation for the function H(, x)
in terms of the parabolic cylinder function D

(x), which is well studied (see [12,

formula 9.241.2]).
In the case when (, 0) > 0 and > 0, Theorem 2 is proved by Hadjiev (see
[7, p. 85, Theorem 2]), where a slightly dierent parametric martingale family is used.
The case when (, 0) > 0 and = 0 is also discussed in [7] under an additional
condition (see Hypothesis G in [7]).
3. Exponential boundedness of
b
. In this section, we give sucient condi-
tions, weaker than in [9], for the exponential moments of
b
to be nite. The existence
of exponential moments for the rst-passage times from interval (a, b):

a,b
= inf{t > 0: X
t
> b or X
t
< a}, b > X
0
> a,
is established too.
Theorem 3. Let condition (10) or (15) with x = b hold. Assume also that
E(Y

1
)

< for some (0, 1). (25)

Then there exists > 0 such that
Ee

b
< .
Proof. Assuming (6), we shall use an analytical continuation of the martingale
family e
t
H(, X
t
), > 0, to (, 0) with involved in (25).
For (, 0), set
H(, x) =
_

0
(e
ux(u)
1) u
1
du for (, 0). (26)
By (10) and Lemma 1, |H(, x)| < if and only if
_
1
0
|(u)| u
1
du < .
Owing to (5) and (8), for > 1 we have
_
1
0
|(u)| u
1
du C +C
_
1
0
|I
2
(u)| u
1
du
(hereafter C is a positive generic constant).
The inequality
1 e
z
C

, z > 0, (0, 1], (27)

296 A. NOVIKOV
provides the following bound:
_
1
0
|I
2
(u)| u
1
du =
_ _
1
0
_
u
0
(1 e
vx
)
v
dv I{x 1} (dx) u
1
du

_
|x|

I{x 1} (dx)
_
1
0
u
1+
du
in which the latter integral in the right-hand side is nite for any (, 0),
whereas (25) is equivalent to
_
|x|

I{x 1} (dx) < .

The function H(, x), (, 0), dened in (26), can be considered as an an-
alytical continuation of H(, x), > 0. From (26) (see also (24)) it easily follows
that
lim
0
H(, x) = 1. (28)
Just repeating the proof of Theorem 1 with H(, x), (, 0), we may prove that
the process
e
t
_

0
(e
uXt
e
uX0
) u
1
e
(u)
du +H(, X
0
) e
t
is a martingale. Then, by the optional stopping theorem for martingales for any
t < , we have
Ee
min(
b
,t)
_ _

0
(e
uX
min(
b
,t)
e
uX0
) u
1
e
(u)
du +H(, X
0
)
_
= H(, X
0
).
(29)
First consider the case ((0, )) = 0. Then condition (6) holds obviously. Since
X
min(
b
,t)
b and < 0, we have
Ee
min(
b
,t)
_

_

0
(e
ub
e
uX0
) u
1
e
(u)
du +H(, X
0
)
_
H(, X
0
). (30)
Further, whereas
0 <
_

0
(e
ub
e
uX0
) u
1
e
(u)
du
_

0
(e
ub
e
uX0
) u
1
e
(u)
du <
as 0, there exists
0
(, 0) such that for any (
0
, 0)

_

0
(e
ub
e
uX0
) u
1
e
(u)
du > 0.8.
On account of (28), there is
1
(
0
, 0) such that 0.9 <
1
H(
1
, X
0
) < 1.1 So, (30)
provides
Ee
1 min(
b
,t)

1
H(
1
, X
0
)

1
_

0
(e
ub
e
uX0
) u
11
e
(u)
du +
1
H(
1
, X
0
)
<
1.1
0.1
.
This bound is valid for any t 0. Hence, by the Fatou lemma, the statement of
Theorem 3 holds true for =
1
.
MARTINGALES AND FIRST-PASSAGE TIMES 297
If ((0, )) > 0, then, choosing a positive constant A with ((0, A]) > 0, we in-
troduce the OU-process X
A
t
, generated by the Levy process Y
A
t
with positive jumps
truncated by A, and the level crossing time
A
b
and notice that
A
b

b
. Ap-
plying identity (29) with
b
replaced by
A
b
and properly dened functions
A
(u)
and H
A
(, X
0
), and taking into account X
A
min (
A
b
,t)
b + A and < 0, we get the
bound
Ee
min(
A
b
,t)
_

_

0
(e
u(A+b)
e
uX0
) u
1
e

A
(u)
du +H
A
(, X
0
)
_
H
A
(, X
0
).
The last part of the proof is similar to that for the case ((0, )) = 0. Theorem 3 is
proved.
Corollary 1. Let > 0 or ((, )) > 0. Assume
E|Y
1
|

< for some > 0.

Then there exists > 0 such that
Ee

a,b
< .
Proof. Denote
a
= inf{t > 0: X
t
< a} and note that
a,b
= min(
b
,
a
). By
Theorem 3, applied to
b
and
a
, the desired result holds.
4. The moment Wald identity. The theorem below generalizes Theorem 2
of [8].
Theorem 4. Denote T = inf{t 0: X
t
f(t)}, X
0
< f(0), where f(t) is a
continuous deterministic function such that sup
t0
f(t) = M < . Let conditions (6)
and (25) hold. Further, assume condition (10) or (15) with x = M holds.
Then
ET = E
_

0
(e
uX
T
e
uX0
) u
1
e
(u)
du < . (31)
Proof. First we shall show that under (10) or (15) with x = M the process
__

0
(e
uXt
e
uX0
) u
1
e
(u)
du t, t 0
_
(32)
is a martingale. Indeed, since {e
t
H(, X
t
), t 0} is the martingale for > 0, we
have
e
t
E
_
_
H(, X
t
) H(, X
0
)

| F
s
_
+ (e
t
1) H(, X
0
)
= e
s
_
H(, X
s
) H(, X
0
)

+ (e
s
1) H(, X
0
) a.s. (33)
Under the conditions of Theorem 4
lim
0
_
H(, z) H(, X
0
)

=
_

0
(e
uz
e
uX0
) u
1
e
(u)
du
for any z, if (10) holds, or for any z < M, if (15) holds with x = M. Further, due
to (24), we have
lim
0
(e
t
1) H(, X
0
) = t.
298 A. NOVIKOV
Applying now the dominated convergence theorem we can interchange the symbols
of the limit as 0 and the conditional expectation in the left side of (33). Thus,
passing to the limit as 0 in both parts of (33) we obtain the martingale prop-
erty (32).
By the optional stopping theorem for martingales we nd that
Emin(, t) = E
_

0
(e
uX
min (,t)
e
uX0
) u
1
e
(u)
du (34)
is valid for any stopping time and xed t < .
To complete the proof, it remains only to verify that for computation of lim
t

in the right-hand side of (34) with = T can be reduced to computation under the
expectation symbol. We verify that as follows. By Theorem 3,
ET < . (35)
Further, since (34), with = T, is equivalent to
Emin(T, t) = EI{T t}
_

0
(e
uX
T
e
uX0
) u
1
e
(u)
du +e
t
,
where e
t
= EI{T > t}
_

0
(e
uXt
e
uX0
) u
1
e
(u)
du. Assume for a moment that
lim
t
e
t
= 0. (36)
Then, by the dominated convergence theorem, (31) holds true.
For a verication of (36), we notice that X
t
M on the set {T > t}. Therefore,
applying (27), we nd that
|e
t
| =

EI{T > t, X
t
X
0
}
_

0
(e
uXt
e
uX0
) u
1
e
(u)
du
EI{T > t, X
t
< X
0
}
_

0
e
uX0
(1 e
u(XtX0)
) u
1
e
(u)
du

P{T > t, X
t
X
0
}
_

0
(e
uM
e
uX0
) u
1
e
(u)
du
+E
_
I{T > t, X
t
< X
0
} C

_

0
e
uX0
u
1+
e
(u)
du
_
(X
t
X
0
)

_
C
1
P{T > t} +C
2
E
_
I{T > t}|X
t
X
0
|

, (37)
where
C
1
=
_

0
(e
uM
e
uX0
) u
1
e
(u)
du, C
2
= C

_

0
e
uX0
u
1+
e
(u)
du.
Set

Y
t
= W
t
+
_
t
0
_
xI{|x| < 1}
_
p(dx, ds) (dx) ds

Y
t
=
_
t
0
_
xI{|x| 1} p(dx, ds).
MARTINGALES AND FIRST-PASSAGE TIMES 299
Since by (3) and (4),
X
t
X
0
= (
1
mX
0
)(1 e
t
) +e
t
_
t
0
e
s
d

Y
s
+e
t
_
t
0
e
s
d

Y
s
.
with the help of inequality |a +b +c|

|a|

+|b|

+|c|

, (0, 1), we nd that

|X
t
X
0
|

|
1
mX
0
|

+|

X
t
|

+
_
t
0
_
|x|

I{|x| 1} p(dx, ds), (38)

where

X
t
is an OU-process with

X
0
= 0, generated by the square-integrable martin-
gale

Y
t
.
Below, we shall show that for any stopping time and 2
Esup
t
|

X
t
|

C
,
E
/2
. (39)
By the property of the stochastic integral (see, e.g., [1] or [13]), for any stopping
time we have
E
_

0
_
|x|

I{|x| 1} p(dx, ds) =

_
|x|

I{|x| 1} (dx) E,
where, by (6) and (25),
_
|x|

I{|x| 1} (dx) < . (40)

Combining (35), (37), (38), (40), and (39) (inequality (39) will be proved in what
follows), we conclude that Esup
tT
|X
t
x| < and in turn (36) holds.
To verify (39), we apply the It o formula to

X
2
t
= e
2t
M
2
t
, with
M
t
=
_
t
0
e
s
d

Y
s
,
and nd that

X
2
t
=
_
t
0
e
2s
(2M
s
dM
s
) +
_
t
0
e
2s
d
_
[M
s
, M
s
] M
s
, M
s

_
+
_
t
0
M
2
s
de
2s
+t
_

2
+
_
x
2
I{|x| < 1} (dx)
_
.
Here, the rst and second integral terms are martingales, and the third one is negative.
For any bounded stopping time , these facts provide
E

X
2

E()
_

2
+
_
x
2
I{|x| < 1} (dx)
_
.
So, for 2, (39) is provided by Lenglarts domination principle (see, e.g., [18,
p. 156]). Theorem 4 is proved.
Remark 4. Since X

b
b, Theorem 4 provides
E
b

_

0
(e
ub
e
uX0
) u
1
e
(u)
du.
300 A. NOVIKOV
Note that Theorems 1 and 4 involve condition (6), which does not hold for ex-
ponentially distributed, as well as others of such type, positive jumps. However, the
truncation technique implementation (for large positive jumps) allows obtaining a
lower bound in this case as well. So, instead of (6) we assume
K = sup
_
u 0: Ee
uYt
= exp
_
t(u)
_
<
_
<
and dene the function
(u) =
1

_
u
0
v
1
(v) dv, u < K.
Then, repeating the steps of the proof of Theorem 4, rst for the case with truncated
jumps and then passing to the limit as the parameter of truncation increases to innity,
we obtain the lower bound
E
b

_
K
0
(e
ub
e
uX0
) u
1
e
(u)
du.
Remark 5. Identity (31) might also be used for creating corresponding bounds
for two-sided stopping times
a,b
. If, for example, Y
t
is the process with a symmetric
distribution, X
0
= 0, and (6) holds, then (34) holds for X
t
and (X
t
) as well, that
is, for any stopping time
Emin (, t) = E
_

0
(e
uX
min(,t)
1) u
1
e
(u)
du.
Hence,
Emin(, t) = E
_

0
(cosh(uX
min(,t)
) 1) u
1
e
(u)
du. (41)
Note that the similar identity is used in [11] for the derivation of maximal inequalities
for the Gaussian OU-process. Since the Gaussian OU-process is continuous, from
(41), as t , it follows that
E
b,b
=
_

0
_
cosh(ub) 1
_
u
1
e
(u)
du < , (u) =

2
u
2
4
.
5. Maximal inequalities for stable OU-processes. We consider now a spec-
tral negative stable process Y
t
(see [1] or [19]) with
Ee
uY1
= exp{
1
u

}, u 0, 1 < 2. (42)
This process Y
t
, and in turn X
t
, does not have positive jumps. Moreover,
(u) = u

/(
2
).
By (18),
Eexp{uX
t
} = exp
_
uX
0
e
t
+
(1 e
t
) u

_
.
MARTINGALES AND FIRST-PASSAGE TIMES 301
If = 2, X
0
= 0, the process X
t
is Gaussian. Then by [11] the following remarkable
inequality is valid: For any stopping time
C
1
E
_
log (1 +)
_
E
_
max
t
|X
t
|
_
C
2
E
_
log (1 +), (43)
where C
1

1
3
, C
2
3.3795.
We prove here an analogue of (43).
Theorem 5. Let (42) hold and X
t
solve (1) with X
0
0. Then for any stopping
time and all p > 0
c
p
E
_
_
log(1 +)
_
p(11/)
_
E
__
sup
t
X
t
_
p
_
a
p
+C
p
E
_
_
log(1 +)
_
p(11/)
_
, (44)
where positive constants a
p
, c
p
, and C
p
do not depend on .
For the proof of inequality (43), Graversen and Peskir [11] apply Walds moment
identity with the formula for E being similar to (41). Here, we apply identity (34),
which is the one-sided analogue of the above-mentioned formula from [11]. We also
use the following simple consequence of Lenglarts domination principle.
Lemma 2. Let Q
t
be a nonnegative, right continuous process and let A
t
be an
increasing continuous process, A
0
= 0. Assume that for all bounded stopping times
EQ

EA

. (45)
Then for all p > 0 and for all bounded stopping times there exist constants c
p
and
C
p
such that
E
__
log
_
1 + sup
t
Q
t
__
p
_
c
p
+C
p
E([log(1 +A

)]
p
). (46)
Proof. By Lenglarts principle, for any increasing continuous function H(x) with
H(0) = 0, (45) provides
E
_
sup
t
H(Q
t
)
_
E
_

H(A

)
_
, (47)
where

H(x) = x
_

x
1
s
dH(s) + 2H(x).
Set H(x) = (log (1 +x))
p
, x 0. By lHospitals rule, lim
x0

H(x) = 0 and
lim
x
x
H(x)
_

x
1
s
dH(s) = 0.
Hence, lim
x
[

H(x)/H(x)] = 2 and there are constants c
p
and C
p
such that

H(x)
c
p
+C
p
H(x). Therefore, (46) is implied by (47) with H(x) = (log (1 +x))
p
.
302 A. NOVIKOV
Proof of Theorem 5. Denote X

t
= sup
st
X
s
. In the absence of positive jumps
for X
t
, the process X

t
is increasing and continuous. Then, (34) provides the following
inequality as valid for any bounded stopping times :
E E
_

0
(e
uX

e
uX0
) u
1
e
u

/(
2
)
du = E
_
G(X

) G(X
0
)
_
,
where
G(y) =
_

0
(e
uy
1) u
1
e
u

/(
2
)
du.
Hence, (45) is valid for Q
t
= t and A
t
= G(X

t
)G(x) the continuous increasing
process, A
0
= 0. By Lemma 2,
E
_
_
log(1 +)
_
p(11/)
_
c
p
+C
p
E
_
_
log
_
1 +G(X

) G(X
0
)
_
p(11/)
_
.
Thus, the lower bound in (44) will be held, if the inequality
log(1 +G(y)) C
1
+C
2
y
/(1)
, y > 0,
is valid. The latter bound readily follows from the well-known asymptotic relation
G(y) = exp
_
C

y
/(1)
_
1 +o(1)
_
_
, y , (48)
(see, e.g., [20, Chap. 3, Exercise 7.3]). The boundedness requirement for stopping
time is easily removed by applying the localization technique.
The upper bound (44) is derived with the help of (34) which, jointly with an
obvious equality e
x
= e
x
+
1 +e
x

, for any bounded stopping time gives

E
_
G(X
+

)
_
G(X
0
) +E +E
_

0
(1 e
uX

) u
1
e
u

/(
2
)
du.
Since
E
_

0
(1 e
uX

) u
1
e
u

/(
2
)
du E(X

)
_

0
e
u

/(
2
)
du
and EX

|X
0
|/ + CE (see, also the proof of Theorem 4), we nd the following
estimate:
E
_
G(X
+

)
_
c +CE.
Thus, (45) is valid with A
t
= c + Ct and Q
t
= G(X
+
t
), where Q
t
is a nonnegative
right-continuous process. By Lemma 2,
E
_
_
log
_
1 +G(X

)
__
p(11/)
_
c
p
+C
p
E
_
_
log(1 +)
_
p(11/)
_
and it remains only to notice that (48) provides the following bound:
C + log(1 +G(y)) Cy
/(1)
, y > 0.
Theorem 5 is proved.
Remark 6. For = 2 and X
0
= 0, the application of (44) to max
t
X
t
and
max
t
(X
t
) leads to (43) without specication of the constants c
p
and C
p
.
MARTINGALES AND FIRST-PASSAGE TIMES 303
Acknowledgments. The author is thankful to R. Elliot, B. Ergashev, R. Liptser,
E. Shinjikashvili, and A. N. Shiryaev for useful comments.
REFERENCES
[1] A. V. Skorohod, Random Processes with Independent Increments, Kluwer Academic Publish-
ers Group, Dordrecht, 1991.
[2] K. Sato, Levy Processes and Innitely Divisible Distributions, Cambridge University Press,
Cambridge, UK, 1999.
[3] D. Perry, W. Stadje, and S. Zacks, First-exit times for Poisson shot noise, Stoch. Models,
17 (2001), pp. 2537.
[4] M. Grigoriu, Applied Non-Gaussian Processes, Prentice-Hall, Englewood Clis, NJ, 1995.
[5] O. E. Barndorff-Nielsen and N. Shephard, Modelling by Levy processes for nancial econo-
metrics, in Levy Processes, Birkhauser Boston, Boston, MA, 2001, pp. 283318.
[6] M. O. C aceres and A. A. Budini, The generalized OrnsteinUhlenbeck process, J. Phys. A,
30 (1997), pp. 84278444.
[7] D. I. Hadjiev, The rst passage problem for generalized OrnsteinUhlenbeck processes with
nonpositive jumps, in Seminaire de Probabilites, XIX, Lecture Notes in Math. 1123,
Springer, Berlin, 1985, pp. 8090.
[8] A. A. Novikov, On the rst exit time of an autoregressive process beyond a level and an
application to the change-point problem, Theory Probab. Appl., 35 (1990), pp. 269279.
[9] A. A. Novikov and B. A.
`
Ergashev, Limit theorems for the time of crossing a level by an
autoregressive process, Proc. Steklov Inst. Math., 4 (1994), pp. 169186.
[10] A. Tsurui and S. Osaki, On a rst-passage problem for a cumulative process with exponential
decay, Stochastic Processes Appl., 4 (1976), pp. 7988.
[11] S. E. Graversen and G. Peskir, Maximal inequalities for the OrnsteinUhlenbeck process,
Proc. Amer. Math. Soc., 128 (2000), pp. 30353041.
[12] I. Gradshteyn and I. Ryzhik, Table of Integrals, Series, and Products, Academic Press, New
York, 1980.
[13] J. Jacod and A. N. Shiryaev, Limit Theorems for Stochastic Processes, Springer-Verlag,
Berlin, 1987.
[14] L. A. Shepp, Explicit solutions to some problems of optimal stopping, Ann. Math. Statist., 40
(1969), pp. 9931010.
[15] H. Robbins and D. Siegmund, Boundary crossing probabilities for the Wiener process and
sample sums, Ann. Math. Statist., 41 (1970), pp. 14101429.
[16] A. A. Novikov, The martingale approach in problems on the time of the rst crossing of
nonlinear boundaries, Trudy Mat. Inst. Steklov, 158 (1981), pp. 130152, 230 (in Russian).
[17] D. A. Darling and A. J. F. Siegert, The rst-passage problem for a continuous Markov
process, Ann. Math. Statist., 24 (1953), pp. 624639.
[18] D. Revuz and M. Yor, Continuous Martingales and Brownian Motion, Springer-Verlag,
Berlin, 1999.
[19] V. M. Zolotarev, One-dimensional Stable Distributions, Translations of Mathematical Mono-
graphs 65, American Mathematical Society, Providence, RI, 1986.
[20] F. W. J. Olver, Asymptotics and Special Functions, Academic Press, New York, 1974.
[21] K. Borovkov and A. Novikov, On a piece-wise deterministic Markov process model, Statist.
Probab. Lett., 53 (2001), pp. 421428.
[22] A. Novikov, R. Melchers, E. Shinjikashvili, and N. Kordzakhia, First Passage Time of
Filtered Poisson Processes with Exponential Shape Function, Research paper 109, Quanti-
tative Finance Research Center, University of Technology, Sydney, Australia, 2003. Avail-
able online at http://www.business.uts.edu.au/qfrc/research papers/rp109.pdf.
[23] S. Wolfram, The Mathematica Book, 4th ed., Wolfram Media, Inc., Champaign, IL; Cam-
bridge University Press, Cambridge, UK, 1999.