TITLE: A type of stochastic jump process
QUESTION [6 upvotes]: Let $X \geq 1$ be an integer r.v. with $E[X]=\mu$. Let $X_i$ be a sequence of iid rvs with the distribution of $X$. On the integer line, we start at $0$, and want to know the expected position after we first cross $K$, which is some fixed integer. Each next position is determined by adding $X_i$ to the previous position. So the question is, if we stop this process after the first time $\tau$ for which $Y_{\tau}=\sum_{i=1}^{\tau}X_i > K$, that is, after the first time it crosses $K$, then what is $E[Y_{\tau}-K]$?.   Can we get a bound of $O(\mu)$?

REPLY [6 votes]: Let $\tau  = \min \{ n \geq 1:X_1  +  \cdots  + X_n  > K \}$. Then $\tau$ is an integer-valued random variable, bounded from above by $K+1$ (since $X_i \geq 1$). Note that $\tau = n$ if and only if $\sum\nolimits_{i = 1}^{n - 1} {X_i }  \le K$ and $\sum\nolimits_{i = 1}^{n} {X_i } > K$. Thus, the event $\lbrace \tau = n \rbrace$ depends only on the values $X_1,\ldots,X_n$. So, by definition, $\tau$ is a stopping time with respect to the sequence $X_1,X_2,\ldots$.  Now, $X_1,X_2,\ldots$ are i.i.d. with finite expectation $\mu$, and $\tau$ is a stopping time for them. Moreover, ${\rm E}(\tau) < \infty$ since $\tau \leq K+1$. Hence, by Wald's identity,
$$
{\rm E}\bigg(\sum\limits_{i = 1}^\tau  {X_i } \bigg) = {\rm E}(\tau )\mu \leq (K+1)\mu.
$$
So if we put $Y_\tau = \sum\nolimits_{i = 1}^\tau  {X_i }$, we get
$$
{\rm E}(Y_\tau - K) = {\rm E}(Y_\tau) - K \leq (K+1)\mu - K.
$$
EDIT:
Since $\tau \geq 1$, we have
$$
\mu - K \leq {\rm E}(Y_\tau - K) \leq (K+1)\mu - K.
$$ 
As we have seen above, the problem reduces to calculating ${\rm E}(\tau)$. Put $S_n = \sum\nolimits_{i = 1}^n {X_i }$ ($S_0 = 0$).
Note that 
$$
{\rm P}(\tau  = n) = {\rm P}(S_{n - 1}  \le K,S_n  > K) = {\rm P}(S_{n - 1}  \le K) - {\rm P}(S_n  \le K).
$$
Hence,
$$
{\rm E}(\tau) = \sum\limits_{n = 1}^{K + 1} {n{\rm P}(\tau  = n)}  = \sum\limits_{n = 1}^{K + 1} n[{\rm P}(S_{n - 1}  \le K) - {\rm P}(S_n  \le K)] = \sum\limits_{n = 0}^K {{\rm P}(S_n  \le K)}. 
$$
So, we can write 
$$
{\rm E}(\tau) = 1 + \sum\limits_{n = 1}^\infty  {{\rm P}(S_n  \le K)} = 1 + \sum\limits_{n = 1}^\infty  {F^{(n)}(K)},
$$
where $F^{(n)}$ is the distribution function of $S_n$. For $t>0$ real, define $m(t) = \sum\nolimits_{n = 1}^\infty  {F^{(n)}(t)}$.
From the theory of renewal processes, we know that $m(t) = {\rm E}(N_t)$, where $\lbrace N_t:t \geq 0 \rbrace$ is a renewal process with inter-arrival times distributed according to the distribution of $X$. $m(t)$ is called the renewal function. It may be worth noting that by the Elementary Renewal Theorem, 
$$
\mathop {\lim }\limits_{t \to \infty } \frac{{m(t)}}{t} = \frac{1}{\mu }.
$$
Returning to our original setting, we have
$$
{\rm E}(Y_\tau  ) = {\rm E}(\tau )\mu  = (1 + m(K))\mu.
$$
So, the problem reduces to calculating $m(K)$. 
Finally, here is some useful link concerning renewal theory, which is very relevant to this answer.
http://www.postech.ac.kr/class/ie272/ie666_temp/Renewal.pdf