Ornstein-Uhlenbeck Process

A large part of my summer has been spent proving some technical results pertaining to the convergence of some functionals of a critical Frozen Percolation process. This has been worthwhile, but hasn’t involved a large amount of reading around anything in particular, which has probably contributed to the lack of posts in recent months. Perhaps a mixture of that and general laziness?

Anyway, it turns out that the limit of the discrete processes under consideration is the Ornstein-Uhlenbeck process. The sense in which this limit holds (or at least, for now, is conjectured to hold) is something for another article. However, I thought it would be worth writing a bit about this particular process and why it is interesting.

The O-U process is described by the SDE

dX_t=-\beta (X_t-\mu)dt+\sigma dW_t,

where W is a standard Brownian motion. We think of \mu as the ‘mean’. The extent to which this behaves as a mean will be discussed shortly. The process is then mean-reverting, in the sense that the drift is directed against deviations of the process away from this mean. The parameter \beta measures the extent of this mean reversion, while as usual \sigma controls the magnitude of the Brownian noise.

The motivation for considering mean-reverting processes is considerable. One measure of this is how many equations with articles on Wikipedia turn out to be precisely this Ornstein-Uhlenbeck process with different context or notation. In most cases, the motivation arises because Brownian motion is for some reason unsuitable to take as a canonical random process. We will see why the O-U process is somehow the next most canonical choice for a random process.

In physics, it is sometimes unsatisfactory to model the trajectory of a particle with Brownian motion (even though this motivated the name…) as the velocities are undefined (see this post from ages ago), or infinite, depending on your definition of velocity. Using the Ornstein-Uhlenbeck process to model the velocity of a particle is often a satisfactory alternative. It is not unreasonable that there should be a mean velocity, presumably zero. The mean reversion models a frictional force from the underlying medium, while the Brownian noise describes random collisions with similar particles.

In financial applications, the Ornstein-Uhlenbeck model has been applied, apparently under the title of the Vasicek model since the 70s to describe quantities such as interest rates where there is some underlying reason to ban indefinite growth, and require mean reversion. Another setting might be a commodity which, because of external driving factors, has over the relevant time-scale well-defined mean value, around which mean-reverting fluctuations on the observed time-scale can be described. As with other financial models, it is undesirable for a process to take negative values. This can be fixed by taking a positive mean, then setting the volatility to be state dependent, decaying to zero as the state tends to zero, so for small values, the positive drift dominates. I don’t fully understand why patching this aspect is significantly more important than patching any other non-realistic properties of the model, but the resulting SDE is, at least in one particular case where the volatility is \sqrt{X_t}, called the Cox-Ingersoll-Ross model.

Anyway, a mathematical reason to pay particular attention to this Ornstein-Uhlenbeck process is the following. It is the unique family of continuous Markov processes to have a stationary Gaussian distribution. It is the mean-reverting property that is key. There is no chance of Brownian motion having any stationary distribution, let alone a Gaussian one. If this isn’t clear, you can convince yourself by thinking of the stationary distribution of SRW on \mathbb{Z}. Since the process is space-homogeneous, the only stationary measure is the uniform measure.

I want to focus on one particular property of the O-U process, through which some other aspects will be illuminated. If we take \sigma=\beta and let \beta\rightarrow\infty, then the stationary processes converge to white noise.

First though, we should note this is perhaps the easiest SDE to solve explicitly. We consider X_t e^{\theta t}, and applying Ito’s lemma rapidly gives

X_t=\mu + (X_0-\mu)e^{-\beta t}+\sigma\int_0^t e^{-\beta(t-s)}dW_s.

W is Gaussian so the distribution of X_t conditional on X_0=x_0 is also Gaussian, and since W is centred we can read off the expectation. Applying the Ito isometry then gives the variance. In conclusion:

X_t\stackrel{d}{=}\mathcal{N}(\mu+(x_0-\mu)e^{-\beta t}, \frac{\sigma^2}{\beta}(1-e^{-2\beta t})).

In particular, note that the variation has no dependence on x_0. So as t grows to infinity, this converges to \mathcal{N}(\mu, \frac{\sigma^2}{\beta}). This is, unsurprisingly, the stationary distribution of the process.

To address the white noise convergence, we need to consider \text{Cov}(X_0,X_t) in stationarity. Let’s assume WLOG that \mu=0 so most of the expectations will vanish. We obtain

\text{Cov}(X_0,X_t)=\mathbb{E}[X_0X_t]=\mathbb{E}_{x_0}\left[\mathbb{E}[X_t| X_0=x_0]\right]=\mathbb{E}[X_0^2 e^{-\beta t}]= \frac{sigma^2}{2\beta}2^{-\beta t}.

If we want, the Chapman-Kolmogorov equations work particularly nicely here, and we are able to derive a PDE for the evolution of the density function, though obviously this is very related to the result above. This PDE is known as the Fokker-Planck equation.

So, in particular, when \sigma=\beta\rightarrow \infty, this covariance tends to 0. I’m not purporting that this constitutes a proof that the Ornstein-Uhlenbeck processes converge as processes to white noise. It’s not obvious how to define process convergence, not least because there’s flexibility about how to view white noise as a process. One doesn’t really want to define the value of white noise at a particular time, but you can consider the covariance of integrals of white noise over disjoint intervals as a limit, in similar way to convergence of finite dimensional distributions.

The fact that taking \beta=0 gives Brownian motion, and this case gives white noise, intermediate versions of the Ornstein-Uhlenbeck process are sometimes referred to as coloured noise.

Finally, the Ornstein-Uhlenbeck process emerges as the scaling limit of mean-reverting discrete Markov chains, analogous to Brownian motion as the scaling limit of simple random walk. One particularly nice example is the Ehrenfest Urn model. We have two urns, and 2N balls. In each time step one of the 2N balls is chosen uniformly at random, and it is moved to the other urn. So a ball is more likely to be removed from an urn with more than N balls. We can view this as a model for molecules in, say a room, with a slightly porous division between them, eg a small hole. More complicated interface models in higher dimensions lead to fascinating PDEs, such as the famous KPZ equation, which are the subject of much ongoing interest in this area.

This result can be an application of the theory of convergence of Markov chains to SDEs pioneered by Stroock and Varadhan, about which more may follow very soon. In any case, it turns out that the fluctuations in the Ehrenfest Urn model are on the scale of \sqrt{n}, unsurprisingly, and are given by a centred Ornstein-Uhlenbeck process.

Investigating this has reminded me how much I’ve forgotten, or perhaps how little I ever knew, about the technicalities of stochastic processes are their convergence results, so next up will probably be a summary of all the useful definitions and properties for this sort of analysis.


Discontinuous Phase Transitions

Yesterday, Demeter Kiss from Cambridge gave a seminar in Oxford about a model for self-destructive percolation on \mathbb{Z}^2 that had implications for the (non-)existence of an infinite-parameter forest fire model on the same lattice. I enjoyed talking about this and his recent work on the related model of frozen percolation on \mathbb{Z}^2. Considering these models in the lattice setting present a whole range of interesting geometric challenges that are not present in the mean-field case that has mainly occupied my research direction so far.

The afternoon’s discussion included lots of open problems about percolation. Several of these are based around continuity of the phase transition, so I thought I would write a quite post about some simple examples of this, and one example where it does not hold.

A helpful base example is bond percolation on the lattice \mathbb{Z}^2. Here, we specify some probability p in [0,1], and we declare edges of the lattice open with probability p, independently of each other. We then consider the graph induced by the open edges. We say that percolation occurs if the origin is contained in an infinite open component. The terminology arises from the interpretation as fluid being added at the origin and flowing down open edges. We define \theta(p) to be the probability that the origin is in an infinite component when the parameter is p. By translation-invariance, we can get some sort of 0-1 law, to conclude that there is an infinite component somewhere in the system with probability either 0 or 1, depending on whether \theta(p) is positive or zero. Indeed, we can further show that if it is positive, then with probability 1 there is a unique infinite component.

We define the critical probability p_c:= \inf\{\theta(p)>0\}. A question worth asking is then, what is \theta(p_c)? In some examples, we can find p_c, but we cannot prove that \theta(p) is continuous around p_c. In the case of \mathbb{Z}^2 this is known, and it is known from work of Kesten that p_c=1/2. See below for a plot of \theta(p) in this setting (obtained from this blog, though possibly originating elsewhere).

percolation probabilityThe aim is to find an example where we do not have such a continuous phase transition. The original work on frozen percolation took place on trees, and one of Kiss’s results is confirms that these show qualitatively different phenomena to the same process on the lattice. In some sense, trees lie halfway between a lattice and a mean-field model, since there is often some independence when we look down the tree from a given generation, if it is well-defined to use such language.

Anyway, first we consider percolation on an infinite regular rooted k-ary tree. This means we have a root, which has k children, each of which in turn has k children, and so on. As before we consider bond percolation with parameter p. In this setting, we have a language to describe the resulting open component of the root. The offspring distribution of any vertex in the open component is given by Bin(k,p) independently of everything else, so we can view this component as the realisation of a Galton-Watson tree with this offspring distribution. This distribution has finite mean kp, and so we can state explicitly when the survival probability is positive. This happens when the mean is greater than 1, ie p>1/k.

For our actual example, we will consider the survival probability, but the technicalities are easier to explain if we look at the extinction probability, now using the language of branching processes. Suppose the offspring distribution has pgf given by


Then the extinction probability q satisfies f(q)=q. I want to pause to consider what happens if this equation has multiple solutions. Indeed, in most interesting cases it will have multiple solutions, since f(1) will always be 1 if it is a non-defective offspring distribution. It is typically cited that: the extinction probability q is the smallest solution to this equation. I want to discuss why that is the case.

To approach this, we have to consider what extinction means. It is the limit in the event sense of the events {we are extinct after n generations}. Let the probabilities of these events be q_n, so q_0=0. Then by a straightforward coupling argument, we must have

0=q_0\le q_1\le q_2 \le\ldots\le q:= \lim q_n \le 1.

But, by the same generating function argument as before, q_{n+1}=f(q_n)\ge q_n. So if we split [0,1] into regions A where f(x)\ge x and B where f(x)<x, all the (q_n)s must occur in the former, and so since it is closed, their limit must be in A also. Note that if f(x) intersects x lots of times, then region A is not necessarily connected. In the diagram below, in moving from q_n to q_{n+1} we might jump across part of B.

Iterative percolation graphThis is bad, as we are trying to prove that q is the right boundary of the connected component of A containing 0. But this cannot happen, as f is monotonic. So if one of the roots of f(x)=x in between the hypothesised q_n<q_{n+1} is called z, then f(q_n)< f(z)=z < q_{n+1}, a contradiction.

Ok, so now we are ready to consider our counterexample to continuity over the percolation threshold. See references for a link to the original source of this example. We have to choose a slightly more complicated event than mere survival or extinction. We consider bond percolation as before on the infinite ternary tree, where every vertex has precisely 3 offspring. Our percolation event is now that the root is the root of an infinite binary tree. That is, the root has at least two children, each of which have at least two children, each of which, and so on.

If we set this probability equal to q, and the probability of an edge being open equal to p, then we have the recurrence:


The first term corresponds to the root having two open edges to offspring, and the second to the root having all three open edges to offspring. After manipulating, we end up with


We are therefore interested in roots of the quadratic lying between 0 and 1. The discriminant can be evaluated as


and so there are no real roots where p<8/9. But when p=8/9, we have a repeated root at q=27/32, which is obviously not zero!

This equation is qualitatively different to the previous one for the extinction probability of a Galton-Watson tree. There, we had a quadratic, with one root at 1. As we varied p, the other root moved continuously from greater than one to less than one, so it passed through 1, giving continuity at the critical probability. Here, we have a cubic, again with one root at 1. But now the other roots are complex for small p, meaning that the local minimum of the cubic lies above the x-axis. As p gets to the critical value, it the local minimum passes below the x-axis, and suddenly we have a repeated root, not at zero.

I would like to have a neat probabilistic heuristic for this result, without having to make reference to generating functions. At the moment, the best I can come up with is to say that the original problem is simple, in the sense that the critical probability is as small as it could be while still making sense in expectation. To be concrete, when the mean of the offspring generation is less than 1, the expected size of the nth generation tends to zero, so there certainly could not be positive probability of having an infinite component.

Whereas in the binary tree example, we only require p=2/3 to have, in expectation, the right number of open edges to theoretically allow an infinite binary tree. If we think of percolation as a dynamic process by coupling in p, essentially as we move from p=2/3 to p=8/9 we need to add enough edges near the origin to be able to take advantage of the high density of edges available far from the origin. The probability of this working given you start from n vertices grows much faster (as n grows) than in the original problem, so you might expect a faster transition.

This is so content-free I’m reluctant even to call it a heuristic. I would be very interested to hear of any more convincing argument for this phenomenon!


Dekking, Pakes – On family trees and subtrees of simple branching processes (link)

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IMO 2013 – Part One: Travel and Training


Six years ago in Rhodes, Tom Lovering and I started what has now become a strong tradition of preparing an unofficial report about maths competitions from the student perspective. It seems appropriate to attempt to continue this in my new role as the Deputy Leader of this year’s UK team at the IMO. And since I have excellent wifi and a (just about) active maths blog, there seems no reason not to do this in real time, at least to a first approximation. I’m sure fans all around the world will be glued to their screens.

I should briefly explain what the IMO is. The acronym stands for International Mathematical Olympiad, and it is a competition held every year in July, welcoming school students from over 100 countries. Tempting though it is to picture a drawn-out global version of the ‘mathletics’ scene at the end of Mean Girls, the reality is somewhat different. Each country sends six students, who sit two 4.5 hour exams, each with three questions, in roughly increasing order of difficulty. It does however remain the case that you get jackets if you make the finals, admittedly with polyester rather than leather sleeves. Medals are awarded to roughly half of the participants.

Each team has a leader, who arrives early to help set the paper, and also assesses their team’s scripts, presenting their marks for approval by a board of co-ordinators supplied by the host country. Each team also has a deputy leader, who stays with the team initially, then joins the leader for this marking process.

As well as the competitive side, the olympiad is a great opportunity to meet other young mathematicians from all around the world. Certainly I am still in touch with many of the people I met when I was lucky enough to compete in Vietnam and Madrid (2007, 2008 respectively). As the competition moves country every year, it’s also a great chance to see some exciting places. This year it is in Santa Marta on Colombia’s Caribbean coast, after Buenos Aires in 2012.

Anyway, on with the report.

Sunday 14th July

I spend the morning packing up my room as I am moving to a new flat pretty much directly after this trip. Everything seems a lot clearer after sorting out the IMO team uniform which has arrived just in time leaving my floor essentially invisible under a sea of boxes. The mini-crisis wherein they were all delivered without my knowledge to the Worcester College kitchens seems but a distant memory…

We are flying at a painfully early hour tomorrow morning, so it makes sense to spend the night at an airport hotel. Courtesy of the satnav, I learn the hard way that there are three Holiday Inns at Heathrow. Geoff, Bev and I are the first to arrive, and wait for the students, two of whom are arriving directly from Copenhagen, bearing prizes and stories from the analogous physics competition just finished there. Parents are reassured that the occasional email and postcard will be sent and we retire in preparation for tomorrow’s Odyssey.

Monday 15th July

Up at 4.30am for the first leg over to Madrid. With time for little other than a quick espresso, straight onto the transatlantic flight to Bogota. The ten hours afford plenty of time to catch up on reading some papers. Had a think about how these results about (uniform) random forests might affect our thoughts about frozen percolation, and took advantage of the increasing tedium to do a long rate function calculation I’d been putting off for ages. I think the answer is \frac{1}{2}(1-\frac{1}{\lambda}) – the question is somewhat more interesting…

Also relish the chance to spend several hours diving into Love in the Time of Cholera, having figured that this was almost certainly a once-in-a-lifetime opportunity to explore a Colombian novelist while in Colombia. So far, so good. In particular, much more interesting than One Hundred Years of Solitude, or perhaps my tastes have changed in the past few years?

We learn courtesy of Iberia that tuna, peach and olives do not make a good sandwich combination, and wonder whether they will be able to resist the temptation to follow every announcement with a synthesised rendition of the Concierto de Aranjuez. A slight delay changing at Bogota airport allows sufficient time for extra sushi and further progress through the example sheet solutions I’ve offered to \LaTeX before the short hop north to Santa Marta. Gabriel’s cynicism about the fate of our luggage turns out to be unfounded, but the two panama hats packed in my suitcase have not enjoyed the trip at all. The Santorini Hotel seems ill-prepared for a group arrival at 10.30pm, but eventually we obtain keys and pay. Shortly afterwards, we are able to unpay one of the bills that they have charged us twice within the space of five minutes. With everyone very grateful for the violent air conditioning, we head for much overdue sleep.

Tuesday 16th July

Up at dawn from the jetlag, but a useful moment to sort out the details for the first practice exam. This pre-IMO camp is a joint venture with the Australian team, and both sets of students are sitting an IMO style exam each morning. The villa we are occupying is somewhat sort on table space, but the three UK students perched on the kitchen bar with their scripts claim that it is fine. If IMO 2008 is anything to go by, where the desks for the competition were so steeply sloped that pens became more valuable as paperweights than as writing equipment, this might be useful practice.

While the students are getting on with the festivities, Bev and I explore various local food options, I study a couple of papers and explore the beach, though the humidity is rather cloying in the middle of the day. The UK team make confident noises about the exam, so I hope that marking the Q2 geometry won’t be too traumatic. Some complicated diagram dependencies render this hope in vain, but we finish up in time for a quick debrief before dinner. Meanwhile, the team have learned the hard way that Colombian plumbing does not hugely appreciate toilet paper…

Wednesday 17th July

I would normally struggle rather badly to find the motivation to go for a 7am run, but with a mile or so of relatively quiet beach on offer, it suddenly becomes a much more attractive proposition. As I return to the Santorini resort, the first waves of peddlers are arriving. One or two make a token attempt to sell me sunglasses, and a nice lady asks me how I got a particularly purple bruise, though I figure my Spanish is not sufficient to explain the idea of cricket right now.

Geoff bids us farewell and heads off to join the other team leaders at a top-secret location where they will begin the process of setting the paper. In theory it’s top-secret; in practice, it must be Barranquilla, the next city down the coast. The students power through another exam all morning, and pleasingly resist the temptation to make anything too complicated, so marking everything is relatively straightforward. Our stroll to dinner is accompanied by a small posse of feral dogs. I am reminded of the health guidance for this part of the world: “rabies is relatively low-risk, except for children, who are more likely to allow themselves to be licked in the face.”