Skip to content

Brownian motion above zero at both t = 2 and t = 8

Question

Let BB be a standard Brownian motion. What is the probability that B2B_2 and B8B_8 are both strictly positive?

Short answer

1/31/3. For s<ts<t the correlation of BsB_s and BtB_t is ρ=s/t=12\rho=\sqrt{s/t}=\tfrac12. For a standard bivariate normal, P[X>0,Y>0]=14+arcsin⁡ρ2π=14+112=13\mathbb{P}[X>0,Y>0]=\tfrac14+\tfrac{\arcsin\rho}{2\pi}=\tfrac14+\tfrac{1}{12}=\tfrac13.

Adapted from QuantQuestions.io; question and answer rewritten by SelfMadeQuant.com.

See the hint and the full worked solution in the question bank (free account).

Open the worked solution

Lessons behind this question