Generalized Duality for Model-Free Superhedging given Marginals

In a discrete-time financial market, a generalized duality is established for model-free superhedging, given marginal distributions of the underlying asset. Contrary to prior studies, we do not require contingent claims to be upper semicontinuous, allowing for upper semi-analytic ones. The generalized duality stipulates an extended version of risk-neutral pricing. To compute the model-free superhedging price, one needs to find the supremum of expected values of a contingent claim, evaluated not directly under martingale (risk-neutral) measures, but along sequences of measures that converge, in an appropriate sense, to martingale ones. To derive the main result, we first establish a portfolio-constrained duality for upper semi-analytic contingent claims, relying on Choquets capacitability theorem. As we gradually fade out the portfolio constraint, the generalized duality emerges through delicate probabilistic estimations.

Optimal Consumption in the Stochastic Ramsey Problem without Boundedness Constraints

This paper investigates optimal consumption in the stochastic Ramsey problem with the Cobb-Douglas production function. Contrary to prior studies, we allow for general consumption processes, without any a priori boundedness constraint. A non-standard stochastic differential equation, with neither Lipschitz continuity nor linear growth, specifies the dynamics of the controlled state process. A mixture of probabilistic arguments are used to construct the state process, and establish its non-explosiveness and strict positivity. This leads to the optimality of a feedback consumption process, defined in terms of the value function and the state process. Based on additional viscosity solutions techniques, we characterize the value function as the unique classical solution to a nonlinear elliptic equation, among an appropriate class of functions. This characterization involves a condition on the limiting behavior of the value function at the origin, which is the key to dealing with unbounded consumptions. Finally, relaxing the boundedness constraint is shown to increase, strictly, the expected utility at all wealth levels.