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Introduction

The document introduces the concept of probability, explaining its historical development and significance in mathematics. It outlines the structure of a course on probability, covering foundational topics such as conditional probability, independence, and stochastic processes, ultimately leading to advanced concepts like Brownian motion and martingales. The text emphasizes the importance of understanding both theoretical and practical aspects of probability, aiming to engage students and instructors alike.

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0% found this document useful (0 votes)
13 views4 pages

Introduction

The document introduces the concept of probability, explaining its historical development and significance in mathematics. It outlines the structure of a course on probability, covering foundational topics such as conditional probability, independence, and stochastic processes, ultimately leading to advanced concepts like Brownian motion and martingales. The text emphasizes the importance of understanding both theoretical and practical aspects of probability, aiming to engage students and instructors alike.

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ma19d003
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law.

Introduction

There is an order to chaos. Unpredictability is predictable. In fact, random-


ness itself is so regular that we can assign a number to a random occurrence
which tells us in a precise way how likely it is. The number is called its
probability.
That is not to say that we can predict the result of a single toss of a fair
coin. We cannot. But we can predict that between forty and sixty out of a
hundred tosses will be heads. We might—rarely—be wrong about that, but
only once or twice in a hundred tries, and if we continue to toss: a thousand
times, a million times, and so on, we can be sure that the proportion of
heads will approach 1/2.
So randomness has its own patterns. Our aim is to understand them.
Probability is a rather unusual part of mathematics. While its full birth
as a mathematical subject can be traced to the correspondence between
Fermat and Pascal1 in the summer of 1654, the subject wasn’t put on a
rigorous footing until 1934, 270 years later, when A. N. Kolmogorov showed
it was properly a part of measure theory2. But probability had been around
for several centuries before measure theory existed, and it is quite possible to
study the subject without it. In fact, probability is taught at many different

1
Pascal and Fermat were by no means the first to study probabiity, but their work on the
“problem of points” was so much deeper than what had gone before that it is properly considered
the true beginning of the subject. See Keith Devlin’s “The Unfinished Game” [13] for an account.
2
See [22] for an English translation of Kolmogorov’s landmark paper. It showed that all of
probability theory could be regarded as a part measure theory, giving a general existence theorem
for stochastic processes (not present, alas, in this book, but see [12] or [9]) and a rigorous definition
Copyright @ 2012. AMS.

of conditional expectations (see Chapter 8), which had previously been confined to special cases.
This was quite a change from the more intuitive approach, and it took some time to replace “could
be taken” by “is.” That was completed by Doob, culminating in his seminal book Stochastic
Processes [12].

xiii

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xiv Introduction

levels, according to the mathematics the students know: in elementary and


high school, first year college, third or fourth year college, as well as in
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graduate school. Certain things are common to all of these courses, but the
the more mathematics the student knows, the deeper he or she can go. This
particular text is drawn from a two-semester course taught over the years
at the University of British Columbia, mainly to fourth-year mathematics
honors students. It assumes the student is familiar with calculus and knows
some analysis, but not measure theory. Many of the students, but by no
means all, take a concurrent course in Lebesgue measure. It is not necessary,
but it adds depth, and gives the student some “Aha!” moments, such as
the sudden realization: “Aha! The expectation is nothing but a Lebesgue
integral3!”
We begin with the basic axioms of probability, and the all-important
ideas of conditional probability and independence. Then we quickly develop
enough machinery to allow the students to solve some interesting problems
and to analyze card games and lotteries. Just to show how quickly one can
get into non-trivial questions, we work out the problem of the gambler’s
ruin.
The systematic study of classical probability begins in Chapter Two. Its
aim is to prove two of the basic classical theorems of the subject: the law
of large numbers and the central limit theorem. Far from being recondite,
these theorems are practically part of Western folklore. Who has not heard
of the law of averages? That is another name for the law of large numbers.
What student has not been subject to “grading on a curve”, a direct (and
often mistaken) application of the central limit theorem? It is surprising how
much of the curriculum is determined by the modest aim of understanding
those two results: random variables, their expectations and variances, their
distributions, the idea of independence, and the ideas of convergence are
needed merely to state the theorems. A number of inequalities, the theory
of convergence in distribution, and the machinery of characteristic functions,
are necessary to prove them. This, along with enough examples to supply
the intuition necessary to understanding, determines the first six chapters.
The second part of the book introduces stochastic processes, and changes
the viewpoint. Stochastic processes evolve randomly in time. Instead of
limit theorems at infinity, the emphasis is on what the processes actually
do; we look at their sample paths, study their dynamics, and see that many
interesting things happen between zero and infinity. There is a large se-
Copyright @ 2012. AMS.

lection of stochastic processes to study, and too little time to study them.

3
On the other hand, students who take probability before measure theory have their “Aha!”
moment later, when they realize that the Lebesgue integral is nothing but an expectation.

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Introduction xv

We want to introduce processes which are major building blocks of the the-
ory, and we aim the course towards Brownian motion and some of its weird
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and wonderful sample path properties. Once more, this determines much
of the curriculum. We introduce the Markov property and stopping times
with a study of discrete-parameter Markov chains and random walks, in-
cluding special cases such as branching processes. Poisson and birth and
death processes introduce continuous parameter processes, which prepares
for Brownian motion and several related processes.
The one non-obvious choice is martingales. This deserves some expla-
nation. The subject was once considered esoteric, but has since shown itself
to be so useful4 that it deserves inclusion early in the curriculum. There are
two obstructions. The first is that its whole setting appears abstract, since
it uses sigma-fields to describe information. Experience has shown that it
is a mistake to try to work around this; it is better to spend the necessary
time to make the abstract concrete by showing how sigma-fields encode in-
formation, and, hopefully, make them intuitive. The second obstruction is
the lack of a general existence theorem for conditional expectations: that
requires mathematics the students will not have seen, so that the only case
in which we can actually construct conditional expectations is for discrete
sigma-fields, where we can do it by hand. It would be a pity to restrict
ourselves to this case, so we do some unashamed bootstrapping. Once we
show that our hand-constructed version satisfies the defining properties of
the general conditional expectation, we use only these properties to develop
the theory. When we have proved the necessary martingale theorems, we
can construct the conditional expectation with respect to a general sigma
field as the limit of conditional expectations on discrete sigma fields. This
gives us the desired existence theorem . . . and shows that what we did was
valid for general sigma-fields all along. We make free use of martingales in
the sequel. In particular, we show how martingale theory connects with a
certain part of mathematical finance, the option pricing, or Black-Scholes
theory.
The final chapter on Brownian motion uses most of what we have learned
to date, and could pull everything together, both mathematically and artis-
tically. It would have done so, had we been able to resist the temptation
to spoil any possible finality by showing—or at least hinting at—some of
Copyright @ 2012. AMS.

4
The tipping point was when engineers started using martingales to solve applied problems,
and, in so doing, beat the mathematicians to some very nice theorems. The coup de grâce was
struck by the surprising realization that the celebrated Black-Scholes theory of finance, used by all
serious option-traders in financial markets was, deeply, martingale theory in disguise. See sections
9.6 and 10.10

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xvi Introduction

the large mathematical territory it opens up: white noise, stochastic inte-
grals, diffusions, financial mathematics, and probabilistic potential theory,
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for example.
A last word. To teach a course with pleasure, one should learn at the
same time. Fair is fair: the students should not be the only learners. This
is automatic the first time one teaches a course, less so the third or fourth
time. So we tried to include enough sidelights and interesting byways to
allow the instructor some choice, a few topics which might be substituted at
each repetition. Most of these are starred:  . In fact, we indulged ourselves
somewhat, and included personal favorites that we seldom have time to cover
in the course, such as the Wiener stochastic integral, the Langevin equation,
and the physical model of Brownian motion.
Copyright @ 2012. AMS.

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