When does a local martingale satisfy $E[M_T \mid \mathcal F_t] = M_t$

186 Views Asked by At

Let $M_t$ be a $\mathcal F_t$-local martingale. What would be the weakest condition we could put on $M$ in order for it to satsify $E[M_T \mid \mathcal F_t]=M_t$ for $t<T<\infty$?

Or in other words, can one exploit the fact that a local martingale is driftless to satisfy that equation without requiring it to be a true martingale?

I know that one possible condition is $\sup E[[M]_t]<\infty$ where $[.]_t$ is its quadratic variation. But this is indeed a condition for $M$ to be a true martingale.

I feel that this question probably does not make sense, because in order to satisfy $E[M_T \mid \mathcal F_t] = M_t$ it seems that we must also impose $E[|M_t|]<\infty$ for all $t$. But then it satisfies all criteria for being true martingale again.

Does this mean that the equation holds for a local martingale if and only if it is also a true martingale?


To add some context for where I started to consider this problem: I have a local martingale $M_t$ and would like it to satisfy $$ \mathbb E \left[\int^T_t dM_s \mid \mathcal F_t \right] = 0 $$ The question is then what condition one needs to impose in order for this to hold, if it is at all possible to do it without imposing true martingality.

1

There are 1 best solutions below

0
On

The requirement $E[|M_t|]<\infty$ for $t\le T$ is not sufficient (I can provide a counterexample if you want). The simplest sufficient condition I know is that the family $\{M_t,t\in[0,T]\}$ is uniformly integrable.