To obtain the required dual formulation of b C
, we then consider a particular subset D ⊂ R of dual processes that takes into account the special structure of b
C :
Definition 2.1. Let D denote the set of elements A ∈ R such that C1 b
C|A] ≤ 0, for all b
C ∈ S
∞
satisfying 0 b
C.
C2 b V |A] ≤
0, for all b V ∈ b
V with essentially bounded total variation.
A more precise description of the set D will be given in Lemma 2.1 and Lemma 2.2 below. In particular, it will enable us to extend the linear form ·|A], with A ∈ D, to elements of b
C
b
:= b C
∩S
b
where S
b
denotes the set of làdlàg optional processes X satisfying X a for some a ∈ R
d
. This extension combined with a Hahn-Banach type argument, based on the key closure property of
Proposition 5.1 below, leads to a natural polarity relation between D and b C
b
. Here, given a subset E
of S
b
, we define its polar as E
⋄
:= {A ∈ R : X |A] ≤ 0 for all X ∈ E} , and define similarly the polar of a subset F of R as
F
⋄
:= X ∈ S
b
: X |A] ≤ 0 for all A ∈ F ,
where we use the convention X |A] = ∞ whenever R
T
X
t−
dA
− t
+ R
T
X
t
dA
◦ t
+ R
T
X
t+
dA
+ t
is not P- integrable.
Our main result reads as follows:
Theorem 2.1. D
⋄
= b C
b
and b C
b ⋄
= D. The first statement provides a dual formulation for the set b
C
b
of super-hedgeable American claims that are “bounded from below”. The second statement shows that D is actually exactly the polar of
b C
b
for the relation defined above.
Remark 2.1. Given b C ∈ S
b
, let Γ b C
denote the set of initial portfolio holdings v such that b C ∈ b
C
v
. It follows from the above theorem and the identity b
C
v
= v + b C
that Γ b
C = ¦
v ∈ R
d
: b C − v|A] ≤
0 for all A ∈ D ©
. If the asset one is chosen as a
numéraire, then the corresponding super-hedging price is given by p b
C := inf
¦ v
1
∈ R : v
1
, 0, · · · , 0 ∈ Γ b C
© .
We shall continue this discussion in Remark 2.2 below.
2.2 Description of the set of dual processes D
In this section, we provide a more precise description of the set of dual processes D. The proofs of the above technical results are postponed to the Appendix.
Our first result concerns the property C1. It is the counterpart of the well-known one dimensional property: if µ admits the representation µX = X |A] and satisfies µX ≤ 0 for all non-positive
process X with essentially bounded supremum, then A has non-decreasing components. In our context, where the notion of non-positivity is replaced by 0 b
C , it has to be expressed in terms of
the positive polar sets process b K
∗
of b K
. 617
Lemma 2.1. Fix A := A
−
, A
◦
, A
+
∈ R. Then C1 holds if and only if
i ˙ A
−
∈ b K
∗ −
d VarA
−
⊗ P-a.e., ii ˙
A
◦c
∈ b K
∗
d VarA
◦c
⊗ P-a.e. and ˙ A
◦δ
∈ b K
∗
d VarA
◦δ
⊗ P-a.e., iii ˙
A
+
∈ b K
∗
d VarA
+
⊗ P-a.e. In the following, we shall denote by R
ˆ K
the subset of elements A ∈ R satisfying the above conditions i-iii.
We now discuss the implications of the constraint C2. From now on, given A := A
−
, A
◦
, A
+
∈ R, we shall denote by ¯
A
−
resp. ¯ A
+
the predictable projection resp. optional of δA
− t
t≤T
resp. δA
+ t
t≤T
, where δA
− t
:= A
− T
− A
− t
+ A
◦ T
− A
◦ t−
+ A
+ T
− A
+ t−
and δA
+ t
:= A
− T
− A
− t
+ A
◦ T
− A
◦ t
+ A
+ T
− A
+ t−
.
Lemma 2.2. Fix A := A
−
, A
◦
, A
+
∈ R. Then C2 holds if and only if
i ¯ A
− τ
∈ b K
∗ τ−
P − a.s. for all predictable stopping times τ ≤ T , ii ¯
A
+ τ
∈ b K
∗ τ
P − a.s. for all stopping times τ ≤ T . In the following, we shall denote by R
∆ ˆ K
the subset of elements A ∈ R satisfying the above condi- tions i-ii.
Note that combining the above Lemmas leads to the following precise description of D:
Corollary 2.1. D = R
ˆ K
∩ R
∆ ˆ K
.
Remark 2.2. Since b K ⊃ [
0, ∞
d
, recall 1.2, it follows that b K
∗
⊂ [0, ∞
d
. The fact that π
i j t
e
i
− e
j
∈ b
K
t
and π
i j t
0 for all i, j ≤ d thus implies that y
1
= 0 ⇒ y = 0 for all y ∈ b K
∗ t
ω. It then follows from Lemma 2.1 that for A ∈ D, e
1
|A] ≥ 0 and e
1
|A] = 0 ⇒ X |A] = 0 for all X ∈ S
b
. In view of Remark 2.1, this shows that
p b C =
sup
B∈D
1
b C|B]
for all b C ∈ S
b
, where D
1
:= {B = Ae
1
, A], A ∈ D s.t. e
1
, A] 0} ∪ {0} .
2.3 Alternative formulation
