Pricing Perspective: Formalization Blueprint

1.2 The Fréchet class and its endpoints

Definition 5 Fréchet class of attainable covariances

The Fréchet class of a pair of clouds is the set of systematic covariances \(\kappa ^\pi _{ij}\) attained as \(\pi \) ranges over their couplings. The coupling set is convex and \(\kappa ^\pi _{ij}\) is affine in \(\pi \), so the class is an interval whenever both endpoints are attained.

Theorem 6 Covariance envelope from optimal transport
✓

Given a finite optimal transport-cost certificate, the ceiling

\[ \kappa ^{\max }_{ij}=\tfrac 12\left(v_i+v_j-W_{2,\Gamma }^2(P_i,P_j)\right) \]

is the greatest systematic covariance attainable over the coupling set. This is a statement about what the two marginal laws permit; it does not identify the realized covariance, which requires the economic joint law. It is the upper endpoint only; the lower one is ??thm:random-exposure-lower-endpoint, a separate theorem.

Proof ▼

??lem:transport-polarization turns least cost into greatest covariance monotonically, and the certificate supplies leastness.

Theorem 7 Reflected lower endpoint
✓

Applying the same argument to the reflected law \((-I)_\# P_j\) gives the sharp lower endpoint of the Fréchet class.

Proof ▼

Covariance is odd and the second moment even under reflection of one argument, so the greatest covariance against the reflected law is the least covariance against the original.

Theorem 8 Transport-excess gap
✓

For any coupling, \(\kappa ^\pi _{ij}=\kappa ^{\max }_{ij}-\tfrac 12\operatorname {excess}(\pi )\). The checked statement is an identity in the reference cost: it holds for any scalar placed where the optimal cost sits, and therefore asserts nothing about the sign of the excess on its own.

Proof ▼

Subtract the reference cost from the coupling cost inside ??lem:transport-polarization and rearrange.

Theorem 9 The excess is nonnegative
✓

Against a certified optimal transport cost, \(\operatorname {excess}(\pi )\ge 0\) for every coupling. This is what makes the gap a one-sided moment inequality and hence testable; it is a separate theorem from the identity above, because the identity holds for any reference cost while the sign needs that cost to be the infimum.

Proof ▼

Immediate from minimality of the certified cost over the coupling set.

Proposition 10 Pairwise envelopes do not assemble

The matrix of independently optimal pairwise envelopes \(\left[\kappa ^{\max }_{ij}\right]\) need not be positive semidefinite, because pairwise-optimal couplings may be mutually inconsistent. A globally coherent covariance requires one joint law, as in ??thm:joint-coherence. Stating this boundary is part of the contribution and is not a defect of the envelope.