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Mathematical Foundations for Quant Finance
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Proof Gym PG2 Proof techniques Lesson 3 of 6

ProofLesson PG2.3 in the Proof Gym, stage PG2: Proof techniques. About 35 minutes.

The logarithm rules, proved

Simulate

Check the claim with numbers

Lesson 1.4.3 gave three log rules and checked them on a few numbers; here they meet 10,000 random cases. Each case picks a base bb, positive numbers xx and yy, and a power kk. It then measures how far each rule is from exact.

⌘/Ctrl + Enter runs the cell

Every gap is below 10−1210^{-12}, the size of rounding error in the last digits. The rules need positive inputs, though. The next cell tries x=−3x = -3 in the power rule, and a sum in place of a product.

⌘/Ctrl + Enter runs the cell

Since (−3)2=9(-3)^2 = 9, the left side ln⁡((−3)2)\ln\left((-3)^2\right) is ln⁡9≈2.1972\ln 9 \approx 2.1972, but 2ln⁡(−3)2 \ln(-3) does not exist. And there is no rule for the log of a sum: 1.6094 against 1.7918.

Conjecture

For every base b>0b > 0 with b≠1b \ne 1, all x,y>0x, y > 0 and every real kk,

log⁡b(xy)=log⁡bx+log⁡bylog⁡b(xy)=log⁡bx−log⁡bylog⁡b(xk)=klog⁡bx\begin{gathered} \log_b (xy) = \log_b x + \log_b y \\ \log_b \left(\frac{x}{y}\right) = \log_b x - \log_b y \\ \log_b \left(x^k\right) = k \log_b x \end{gathered}

Ten thousand cases agree to within 10−1210^{-12}. Rounding hides small failures, and no test can try every positive number, so the rules still need a proof.

Turn a log fact into an exponent fact

A logarithm is an exponent (lesson 1.4.3): log⁡by\log_b y is the power of bb that gives yy. So a fact about logs can be proved as a fact about powers, where the rules are known.

Rule: Reading off a log

bw=y ⇒ log⁡by=w(b>0, b≠1, y>0)\begin{gathered} b^w = y \ \Rightarrow \ \log_b y = w \\ (b > 0,\ b \ne 1,\ y > 0) \end{gathered}

For b>1b > 1 the graph of bxb^x always rises, and for 0<b<10 < b < 1 it always falls (lesson 1.4.2). Either way it reaches each positive yy exactly once. So log⁡by\log_b y is one number, and showing bw=yb^w = y proves that it is ww.

The proofs also use the exponent rules for real exponents. Lesson PG2.2 proved them for whole numbers. Lesson 1.4.2 extends powers of a positive base to every real exponent, with the same rules, and this stage takes that as known:

bu⋅bv=bu+vbubv=bu−v(bu)k=buk\begin{gathered} b^u \cdot b^v = b^{u+v} \qquad \frac{b^u}{b^v} = b^{u-v} \\ \left(b^u\right)^k = b^{uk} \end{gathered}

Format 2

Fill the gap

Here are the three proofs, each a line long once the logs are named. Fill each gap as you would a quick answer, such as u+v, then check.

Let u=log⁡bxu = \log_b x and v=log⁡byv = \log_b y. By the definition of a logarithm, bu=xb^u = x and bv=yb^v = y.

Product rule. xy=bu⋅bv=btxy = b^u \cdot b^v = b^{t} with t=t = . Reading off the log, log⁡b(xy)=u+v=log⁡bx+log⁡by\log_b(xy) = u + v = \log_b x + \log_b y.

Quotient rule. xy=bubv=bt\frac{x}{y} = \frac{b^u}{b^v} = b^{t} with t=t = . So log⁡bxy=log⁡bx−log⁡by\log_b \frac{x}{y} = \log_b x - \log_b y.

Power rule. xk=(bu)k=btx^k = \left(b^u\right)^k = b^{t} with t=t = . So log⁡b(xk)=klog⁡bx\log_b \left(x^k\right) = k \log_b x.

For example, log⁡28=3\log_2 8 = 3 and log⁡24=2\log_2 4 = 2, so the product rule gives log⁡232=\log_2 32 = .

How to type answers
  • Powers with ^, brackets round a power that is a sum: r^k, r^(k+1).
  • Fractions with / and brackets: (1-r)/(1+r). Multiply with * or side by side: 2k+1.
  • Press Enter in any box to check them all.

Format 3

Find the error

This proof claims that ln⁡(x2)=2ln⁡x\ln\left(x^2\right) = 2 \ln x for every x≠0x \ne 0. The simulation found ln⁡9\ln 9 but no 2ln⁡(−3)2 \ln(-3), so one line must be wrong. Select it, then say why.

Simulate

A claim of your own to prove

Lesson 1.4.3 also gave the change-of-base formula, log⁡by=ln⁡yln⁡b\log_b y = \frac{\ln y}{\ln b}. The cell computes w=ln⁡yln⁡bw = \frac{\ln y}{\ln b} for four pairs, then raises bb to the power ww. If bw=yb^w = y, then ww is log⁡by\log_b y by its definition.

⌘/Ctrl + Enter runs the cell

In all four rows bwb^w comes back to yy, for example 23.321928=102^{3.321928} = 10. A base of 1 breaks the formula, because ln⁡1=0\ln 1 = 0.

Conjecture

For every base b>0b > 0 with b≠1b \ne 1 and every y>0y > 0,

log⁡by=ln⁡yln⁡b\log_b y = \frac{\ln y}{\ln b}

Four pairs agree. Prove the formula for every base and every positive yy, using the power rule you have just proved.

Format 4

Write it

Prove the change-of-base formula: for b>0b > 0, b≠1b \ne 1 and y>0y > 0, show that log⁡by=ln⁡yln⁡b\log_b y = \frac{\ln y}{\ln b}. Say why the division is allowed.

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Write your own first: a proof you have tried to write teaches far more than one you only read.

Summary card

  • To prove a fact about logs, name the logs (u=log⁡bxu = \log_b x means bu=xb^u = x) and prove a fact about powers.
  • If bw=yb^w = y, then log⁡by=w\log_b y = w: the exponential reaches each positive number exactly once.
  • log⁡b(xy)=log⁡bx+log⁡by\log_b(xy) = \log_b x + \log_b y, log⁡bxy=log⁡bx−log⁡by\log_b \frac{x}{y} = \log_b x - \log_b y, log⁡b(xk)=klog⁡bx\log_b (x^k) = k \log_b x, for x,y>0x, y > 0.
  • ln⁡(x2)=2ln⁡∣x∣\ln(x^2) = 2 \ln |x| for every x≠0x \ne 0; 2ln⁡x2 \ln x is right only for x>0x > 0.
  • Change of base, log⁡by=ln⁡yln⁡b\log_b y = \frac{\ln y}{\ln b}, needs b≠1b \ne 1 so that ln⁡b≠0\ln b \ne 0.

Free further reading

Optional. This lesson covers what you need; these add more examples and practice. All are free to read.