Wiener Chaos Approach to Optimal Prediction

Abstract

The chaos expansion of a general non-linear function of a Gaussian stationary increment process conditioned on its past realizations is derived. This work combines the Wiener chaos expansion approach to study the dynamics of a stochastic system with the classical problem of the prediction of a Gaussian process based on a realization of its past. This is done by considering special bases for the Gaussian space 𝒢 generated by the process, which allows us to obtain an orthogonal basis for the Fock space of 𝒢 such that each basis element is either measurable or independent with respect to the given samples. This allows us to easily derive the chaos expansion of a random variable conditioned on part of the sample path. We provide a general method for the construction of such basis when the underlying process is Gaussian with stationary increment. We evaluate the basis elements in the case of the fractional Brownian motion, which leads to a prediction formula for this process.

Keywords:

• Fractional Brownian motion
• Hermite polynomials
• Prediction
• Stationary increment processes
• Wiener chaos

Mathematics Subject Classification:

• 60G35
• 60H40
• 60G15
• 30H10

ACKNOWLEDGEMENTS

D. Alpay thanks the Earl Katz family for endowing the chair which supported his research.

Notes

Color versions of one or more of the figures in the article can be found online at www.tandfonline. com/lnfa.