A super-martingale property of the optimal portfolio process (Q1424719)

It is proved that, for a utility function \(U:\mathbb{R}\to \mathbb{R}\) having reasonable asymptotic elasticity, the optimal investment process \(\widehat{H}\cdot S\) is a super-martingale under each equivalent martingale measure \(Q\), such that \(E[V(dQ/dP)]<\infty\), where \(V\) is the conjugate function of \(U\). This result relies essentially on the ideas of concatenation and dynamic programming. It turns out that some explicit calculations in the case of exponential utility are replaced in the paper by more conceptual arguments in the general setting. One -- at first glance paradoxical -- example is presented as a consequence of the main theorem and some delicate analysis of the `good definition' of `allowed' trading strategies for a financial market.