32 2 Models of Financial Markets on Finite Probability Spaces

Proof of Theorem 2.6.1. First assume that T = 1, i.e., we have a one-period

model S = (S0 , S1 ). In this case the present theorem is just a reformulation
of Theorem 2.4.2: if V is a super-martingale under each Q ∈ Me (S), then

EQ [V1 − V0 ] ≤ 0, for all Q ∈ Me (S).

Hence there is a predictable trading strategy H (i.e., an F0 -measurable Rd -

valued function - in the present case T = 1) such that (H · S)1 ≥ V1 − V0 .
Letting C0 = 0 and writing ∆C1 = C1 = −V1 + (V0 + (H · S)1 ) we get the
desired decomposition. This completes the construction for the case T = 1.
For general T > 1 we may apply, for each fixed t ∈ {1, . . . , T }, the same
argument as above to the one-period financial market (St−1 , St ) based on
(Ω, F , P) and adapted to the filtration (Ft−1 , Ft ). We thus obtain an Ft−1 -
measurable, Rd -valued function Ht and a non-negative Ft -measurable function
∆Ct such that
∆Vt = (Ht , ∆St ) − ∆Ct ,
where again ( . , . ) denotes the inner product in Rd . This will finish the con-
struction of the optional decomposition: define the predictablet process H as
(Ht )Tt=1 and the adapted increasing process C by Ct = u=1 ∆Cu . This
proves the implication (i) ⇒ (ii).
The implications (ii) ⇒ (i’) ⇒ (i) are trivial.