Past exam of the mathematics course of the University of Cambridge / 2012 / iii / Paper 44 / 4 / c

Use the usual normalization $Z_0=1$, finite deterministic initial wealth $x=X_0\ge 0$, positive state-price density, and nonnegative consumption. The deflated asset prices $ZP$ are local martingales, so predictable stochastic integrability makes $M=\int H\cdot d(ZP)$ a zero-starting local martingale. Integrating part (b) givesA nonnegative local martingale is a supermartingale: localize to martingales, apply Conditional Fatou lemma, and obtain the conditional expectation inequality and integrability. Therefore $N$, and hence $M=N-x$, are supermartingales. In particular,This is supermartingale control of deflated consumption gains. Nonnegative consumption is essential to the lower bound; it is the ordinary meaning of a consumption rate here. Wealth nonnegativity alone would not supply that bound if arbitrary signed cash flows were allowed.