Inference in $α$-Brownian bridge based on Karhunen-Loève expansions

Maik Görgens

Published 2014-01-10, updated 2014-08-05Version 3

We study a simple decision problem on the scaling parameter in the $\alpha$-Brownian bridge $X^{(\alpha)}$ on the interval $[0,1]$: given two values $\alpha_0, \alpha_1 \geq 0$ with $\alpha_0 + \alpha_1 \geq 1$ and some time $0 \leq T \leq 1$ we want to test $H_0: \alpha = \alpha_0$ vs. $H_1: \alpha = \alpha_1$ based on the observation of $X^{(\alpha)}$ until time $T$. The likelihood ratio can be written as a functional of a quadratic form $\psi(X^{(\alpha)})$ of $X^{(\alpha)}$. In order to calculate the distribution of $\psi(X^{(\alpha)})$ under the null hypothesis, we generalize the Karhunen-Lo\`eve Theorem to positive finite measures on $[0,1]$ and compute the Karhunen-Lo\`eve expansion of $X^{(\alpha)}$ under such a measure. Based on this expansion, the distribution of $\psi(X^{(\alpha)})$ follows by Smirnov's formula.