Brownian Motion and Stochastic Calculus

A graduate-course text, written for readers familiar with measure-theoretic probability and discrete-time processes, wishing to explore shastic processes in continuous time. The vehicle chosen for this exposition is Brownian motion, which is presented as the canonical example of both a martingale and a Markov process with continuous paths. In this context, the theory of shastic integration and shastic calculus is developed, illustrated by results concerning representations of martingales and change of measure on Wiener space, which in turn permit a presentation of recent advances in financial economics. The book contains a detailed discussion of weak and strong solutions of shastic differential equations and a study of local time for semimartingales, with special emphasis on the theory of Brownian local time. The whole is backed by a large number of problems and exercises.