In which Financial Markets do Mutual Fund Theorems hold true?

The Mutual Fund Theorem (MFT) is considered in a general semimartingale financial market S with a finite time horizon T, where agents maximize expected utility of terminal wealth. The main results are:

(i) Let N be the wealth process of the numéraire portfolio (i.e. the optimal portfolio for the log utility). If any path-independent option with maturity T written on the numéraire portfolio can be replicated by trading only in N and the risk-free asset, then the (MFT) holds true for general utility functions, and the numéraire portfolio may serve as mutual fund. This generalizes Merton’s classical result on Black-Merton-Scholes markets.

Conversely, under a supplementary weak completeness assumption, we show that the validity of the (MFT) for general utility functions implies the replicability property for options on the numéraire portfolio described above.

(ii) If for a given class of utility functions (i.e. investors) the

(MFT) holds true in all complete Brownian financial markets S, then all investors use the same utility function U, which must be of HARA type.

This is a result in the spirit of the classical work by Cass and Stiglitz.