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Conditional mean of a Brownian bridge at t = 1/2

Question

Build a Brownian bridge on [0,1][0,1] from a standard Brownian motion WW via Xt=Wt−tW1X_t=W_t-tW_1. Given that X3/4=3X_{3/4}=3, what is the expected value of X1/2X_{1/2}?

Short answer

22. For s<ts<t, Cov⁡(Xs,Xt)=s(1−t)\operatorname{Cov}(X_s,X_t)=s(1-t) and Var⁡(Xt)=t(1−t)\operatorname{Var}(X_t)=t(1-t), so the Gaussian regression gives E[Xs∣Xt]=stXt=1/23/4⋅3=2\mathbb{E}[X_s\mid X_t]=\tfrac{s}{t}X_t=\tfrac{1/2}{3/4}\cdot3=2.

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

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