Correlation of Brownian motion with its own square
Question
For a standard Brownian motion and fixed , what is the correlation between and ?
Short answer
. , since odd moments of a centred normal vanish. They are uncorrelated even though is a function of , a standard example that zero correlation does not imply independence.
Adapted from Zhou, A Practical Guide to Quantitative Finance Interviews, sec. 5.4 Brownian Motion and Stochastic Calculus, 'Brownian motion B', p.129; question and answer rewritten by SelfMadeQuant.com.
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