The stochastic integral representations (martingale representations) of square integrable processes are well-studied problems in applied probability with broad applications in finance. Yet finding explicit expression is not easy and typically done through the Clack-Ocone formula with the advanced machinery of Malliavin calculus. To find an alternative, Shiryaev and Yor (Teor Veroyatnost i Primenen 48(2):375–385, 2003) introduced a relatively simple method using Itô’s formula to develop representations for extrema of Brownian motion. In this paper, we extend their work to provide representations of functionals of time-homogeneous diffusion processes based on the Itô’s formula.
- Itô formula
- Martingale representation
- Running extremum
- Stochastic integral representation
- Time-homogeneous diffusion processes
ASJC Scopus subject areas
- Statistics and Probability