Past exam of the mathematics course of the University of Cambridge / 2024 / ii / Paper 1 / 30L / c / Solution

Let $P$ be the state-by-asset matrix of discounted gains and identify $Y$ with its state vector. Fix $q^0\in \mathcal{Q}$. If $q\ge 0$, $P^{T}q=0$, and $q\ne 0$, thenbelongs to $\mathcal{Q}$. The assumption and passage to the limit imply $q^{T}Y\ge 0$ for every nonnegative $q\in \ker P^T$.

The finite-state superhedging alternative now gives $\theta$ withThis residual cannot vanish identically, since then every $Q\in \mathcal{Q}$ would have $E_{Q}Y=q^{T}P\theta =0$. Hence it is strictly positive in at least one state, which has positive physical probability. This is the required inequality.