Stochastic Ordering for Bernoulli and Normal Random Walks

Abstract

Let (Snp)n≥ 0 be a Bernoulli random walk where each of the independent increments is either 1 or -1 with probabilities p and 1-p. For p' and p'' ∈ [0,1] with |p'-1/2|>|p''-1/2|, we show that (|Snp''|)n≥ 0 is stochastically smaller than (|Snp'|)n≥ 0. In other words, (|Snp|)n≥ 0 is stochastically decreasing in p ∈ [0,1/2] and increasing in p∈ [1/2,1]. An analogous result is also given for the family of normal random walks indexed by μ ∈ R where each of the independent increments is normally distributed with common mean μ and variance 1. Extension to Brownian motion then follows by a limiting argument. As an application, these results are used to easily derive stochastic ordering properties for stopping times of Bernoulli and normal random walks.

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