3.

1 The Complete Case 37

We now apply these general facts about the Legendre transform to calcu-
late Ψ (y). Using definition (3.9) of the conjugate function V and (3.5), formula
(3.7) becomes:


N  
Ψ (y) = pn V y pqnn + yx
n=1
  
dQ
= EP V y + yx.
dP

Denoting by v(y) the dual value function

    N  
dQ
v(y) := EP V y = pn V y pqnn , y > 0, (3.14)
dP n=1

the function v has the same qualitative properties as the function V listed in
Definition 3.1.1, since it is a convex combination of V calculated on linearly
scaled arguments.
Hence by (3.10), (3.11), and (3.12) we find, for fixed x ∈ dom(U ), a unique
y = y(x) > 0 such that v  (
y (x)) = −x, which is therefore the unique minimiser
to the dual problem
  
dQ
Ψ (y) = EP V y + yx = min!
dP

Fixing the critical value y(x), the concave function

(ξ1 , . . . , ξN ) → L(ξ1 , . . . , ξN , y(x))

defined in (3.5) assumes its unique maximum at the point (ξ1 , . . . , ξN ) satis-
fying  
U  (ξn ) = y(x) pqnn or, equivalently, ξn = I y(x) pqnn ,

so that we have

inf Ψ (y) = inf (v(y) + xy) (3.15)

y>0 y>0
= v(
y (x)) + x y (x)
= L(ξ1 , . . . , ξN , y(x)).

Note that the ξn are in the interior of dom(U ), for 1 ≤ n ≤ N , so

that L is continuously differentiable at (ξ1 , . . . , ξN , y(x)), which implies that
the gradient of L vanishes at (ξ1 , . . . , ξN , y(x)) and, in particular, that
∂
∂y L(ξ1 , . . . , ξN , y)|(ξ1 ,...,ξN , (x) > 0,
y(x)) = 0. Hence we infer from (3.4) and y
that the constraint (3.3) is binding, i.e.,