Pricing Perspective: Formalization Blueprint

2.2 Return bridge

Theorem 21 Additive residual-budget cap
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If standardized total variance decomposes into the certified systematic term and an aggregate residual contribution bounded by \(\delta \geq 0\), then

\[ \operatorname {Var}(R_q)\leq 1-\mathcal C(q)+\delta . \]

Multiplication by a nonnegative raw scale gives the corresponding raw-variance inequality. The theorem assumes \(\delta \); it does not estimate it or derive residual orthogonality.

Proof ▼

Add the assumed residual budget to the systematic certificate and preserve the inequality under multiplication by the square of the raw scale.