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Martingale difference sequence

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Title: Martingale difference sequence  
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Subject: Martingale (probability theory), Stochastic processes, Continuous-time stochastic process, Markov additive process, Poisson point process
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Martingale difference sequence

In probability theory, a martingale difference sequence (MDS) is related to the concept of the martingale. A stochastic series X is an MDS if its expectation with respect to the past is zero. Formally, consider an adapted sequence \{X_t, \mathcal{F}_t\}_{-\infty}^{\infty} on a probability space (\Omega, \mathcal{F}, \mathbb{P}). X_t is an MDS if it satisfies the following two conditions:

\mathbb{E} \left[X_t\right] < \infty , and
\mathbb{E} \left[X_t | \mathcal{F}_{t-1}\right] = 0, a.s. ,

for all t. By construction, this implies that if Y_t is a martingale, then X_t=Y_t-Y_{t-1} will be an MDS—hence the name.

The MDS is an extremely useful construct in modern probability theory because it implies much milder restrictions on the memory of the sequence than independence, yet most limit theorems that hold for an independent sequence will also hold for an MDS.


References

  • James Douglas Hamilton (1994), Time Series Analysis, Princeton University Press. ISBN 0-691-04289-6
  • James Davidson (1994), Stochastic Limit Theory, Oxford University Press. ISBN 0-19-877402-8
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