General recipe

From Ito formula,

$$ f(B_t)-f(B_0)

\int_0^t f’(B_s),dB_s + \frac12\int_0^t f’’(B_s),ds. $$

Move the drift term to the left:

$$ f(B_t)-f(B_0)-\frac12\int_0^t f’’(B_s),ds

\int_0^t f’(B_s),dB_s. $$

Consequence

The right-hand side is an Ito integral, so it is a martingale. Therefore

$$ f(B_t)-f(B_0)-\frac12\int_0^t f''(B_s)\,ds $$

is a martingale.

Examples

  • If $f(x)=x$, then $B_t$ is a martingale.
  • If $f(x)=x^2$, then $B_t^2-t$ is a martingale.