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For the completed natural Brownian filtration, every event in the germ sigma-field of Brownian motion has probability zero or one. Indeed, an event measurable at every positive time is independent of all increments after each such time. Letting that time decrease to zero and using path continuity makes the event independent of the entire Brownian path sigma-field. Since it is itself measurable in that sigma-field, its probability equals its square.

A filtration $({\mathcal{F}}_t)$ is a Brownian filtration for $B$ when $B$ is an adapted process and each future increment $B_t-B_s$ is independent of ${\mathcal{F}}_s$. The natural filtration of a Brownian motion has this property. Arbitrary enlargement by future information need not preserve it.

In the completed natural Brownian filtration, a bounded continuously differentiable $\varphi$ with bounded derivative satisfiesThe integrand is unique up to $d\mathbb{P}dt$-almost everywhere equality. Gaussian integration by parts first gives the duality between the payoff and every square-integrable Itô integral. The Brownian martingale representation theorem then identifies the integrand as the projection of ${\varphi }^{\prime }(W_T)1_{\{t\le T\}}$ onto the predictable processes in the product $L^2$ space. This explains the conditional expectation in the formula, rather than a nonadapted terminal derivative.

With zero interest and zero risk premium, a manager whose current wealth lies between common-tangent contacts $\ell ,h$ can improve expected utility maximization through a fair lottery paying those two values. The probability of $h$ is $(w_0-\ell )/(h-\ell )$. In a Brownian filtration, replicating a bounded terminal lottery gives a nonnegative wealth martingale throughout.

The natural Brownian filtration is the natural filtration generated by a Brownian motion. Its usual augmentation adds null events and makes it right-continuous; the Brownian martingale representation theorem holds for this augmented natural filtration. A larger Brownian filtration can preserve independence of future increments while containing additional randomness, so it need not have martingale representation with respect to the specified Brownian motion.

Under the specified risk-neutral measure, the Itô product rule and $d(B_t^{-1})=-r_t{B}_t^{-1}dt$ giveThus discounted traded zero-coupon bonds have zero drift. Assume the usual integrability and admissibility conditions that make discounted replicating values true martingales, not merely local martingales. If $X$ is an attainable financial payoff with ${\mathbb{E}}_Q|B_T^{-1}X|<\infty$, its self-financing portfolio value $V_t$ has terminal value $V_T=X$ and satisfiesMultiplying by $B_t$ yieldsThis proves the requested conditional pricing formula. In a Brownian filtration, the Martingale representation theorem realizes the discounted conditional expectation as a stochastic integral. If an available bond has nonzero Itô diffusion exposure, its holdings can match that integral, with the remaining value in the bank account, giving replication under the usual square-integrability conditions.

These attainability or market completeness hypotheses matter for a completely arbitrary contingent claim: existence of a risk-neutral measure alone need not imply a unique price for every unspanned financial payoff, and a zero-drift local martingale alone need not satisfy the displayed terminal expectation identity. In the general path-dependent Heath-Jarrow-Morton model, write the value as $V_t$; notation $V(t,r_t)$ is justified only when the current short rate is a sufficient state for the financial payoff and dynamics.

The terminal variable $F=\varphi (W_T)$ is bounded and hence square-integrable. In the completed natural Brownian filtration, the Brownian martingale representation theorem says that any square-integrable ${\mathcal{F}}_T$-measurable variable admits a representationwith $\beta$ predictable and $\mathbb{E}{\int }_0^T{\beta }_u^{2}du<\infty$. Extend $\beta$ by zero after $T$. Thus the requested constant and integrability areExpectation determines $c$ uniquely. If two integrands give the same representation, the Itô isometry gives $\mathbb{E}{\int }_0^{\infty }({\beta }_u-{\tilde{\beta }}_u{)}^{2}du=0$. Consequently $\beta$ is unique up to $d\mathbb{P}du$-almost everywhere equality, rather than pointwise equality at every time. The corresponding integral martingales are indistinguishable.

Assume $\sigma \ne 0$ and the usual Brownian filtration, so the single-risky-asset market is a complete market. With market price of risk $\kappa =(\mu -r)/\sigma$, the normalized state-price density isThe Itô formula shows that ${\zeta }_t{w}_t$ is a local martingale for a self-financing portfolio. For nonnegative admissible wealth it is a supermartingale, yielding the state-price budget constraintEvery integrable nonnegative terminal claim with equality is attainable in the complete market, by the Brownian martingale representation theorem. Its wealth process is $w_t={\zeta }_t^{-1}\mathbb{E}[{\zeta }_{T}X\mid {\mathcal{F}}_t]\ge 0$.

The Inada conditions $u^{\prime }(0+)=\infty$ and $u^{\prime }(\infty )=0$, together with strict concavity, make $I=(u^{\prime }{)}^{-1}$ a decreasing map from $(0,\infty )$ onto $(0,\infty )$. Pointwise optimization of $u(x)-y{\zeta }_{T}x$ gives the optimal terminal wealthwith scalar multiplier $y>0$. The question assumes a multiplier giving the required budget; utility expectations must also be well defined.

For any admissible terminal wealth $X$, the supporting-line inequality for a concave function givesTaking expectations and using the state-price budget constraint proves optimality:Strict concavity makes the optimal terminal wealth unique up to almost-sure equality.

Apply the Itô formula to ${\xi }_t=V(t,S_t)$. The backward equation cancels its drift, leavingBounded $a$ and $V_S$ make this Itô integral square-integrable on the finite horizon; in addition $V$ itself is bounded. Hence $\xi$ is a true martingale, not just a local martingale, and ${\xi }_T=g(S_T)$. Taking conditional expectations givesThe stock is understood to be adapted to the stated Brownian filtration, with its initial value fixed there. This is the Feynman-Kac formula in the zero-potential, zero-drift case.

Use the usual completed right-continuous Brownian filtration. The strict passage process $(T_a{)}_{a\ge 0}$ is finite at every level on one probability-one event: finiteness at all integer levels from (a) suffices by monotonicity. Also $T_0=0$ almost surely by (b).

For each fixed $a$, $T_a$ is a stopping time with $B_{T_a}=a$. The Strong Markov property shows that the passage times above this level depend on a new independent standard Brownian motion. Thus for $0\le a<b$, $T_b-T_a$ is independent of the past at $T_a$ and has the same law as $T_{b-a}$. Iteration gives independent increments and stationary increments in the level parameter. From (a) and fixed-level equality,For $\lambda ,\eta >0$, this also proves continuity in probability at zero, sinceFinally, with $M_t={\sup }_{s\le t}{B}_s$, we have $T_a=\inf \{t:M_t>a\}$. This strict generalized inverse of a nondecreasing function is right-continuous: if $a_n\downarrow a$, then for any $t>T_a$ we have $M_t>a$, and eventually $M_t>a_n$, which forces $T_{a_n}\le t$. Monotonicity gives the reverse bound. Monotonicity and local finiteness also give finite left limits. Hence $T$ is the Brownian first-passage subordinator, with càdlàg paths.

Now condition on this clock, which is independent of $W$. For a deterministic partition $0=a_0<a_1<\cdots <a_k$, write $\Delta T_j=T_{a_j}-T_{a_{j-1}}$ and $\Delta X_j=W_{T_{a_j}}-W_{T_{a_{j-1}}}$. Conditional on the clock these are independent centered Gaussian increments, with respective variances $\Delta T_j$. ConsequentlyFactorization and dependence only on interval lengths prove independent increments and stationary increments for $X$. For small $h$, $T_h\to 0$ in probability, and independence and continuity of $W$ imply $W_{T_h}\to 0$ in probability. For example, bound its deviation probability by $\mathbb{P}(T_h>\eta )+\mathbb{P}({\sup }_{t\le \eta }|W_t|>\epsilon )$ and then let $h\downarrow 0$ and $\eta \downarrow 0$. Stationary increments give stochastic continuity at every deterministic level. Composition of the continuous path of $W$ with the nondecreasing càdlàg clock gives càdlàg paths for $X$, and $X_0=0$. ThusThis is subordination of a Lévy process. Using strict passage times ensures the required right-continuous path choice, despite their fixed-level equality with the non-strict times.

For a stopping time $T$ of a Brownian filtration, define the reflected stochastic processThe Brownian reflection at a stopping time form of the Brownian reflection principle states that $\hat{B}$ is again standard Brownian motion. If $T=\infty$, leave the path unchanged; the second branch is used only when $T<t$.

For an almost surely finite $T$, the Strong Markov property says that $(B_{T+s}-B_T{)}_{s\ge 0}$ is a fresh Brownian motion independent of ${\mathcal{F}}_T$. Its negative has the same probability distribution, so reflecting the future preserves the full path probability distribution. Allowing $T=\infty$ follows by applying this argument to $T\wedge n$ and restricting to each fixed finite time interval.