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Strategies & Market Trends : The Final Frontier - Online Remote Trading
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To: KFE who wrote (11175)3/8/2004 10:25:12 AM
From: Tech Master  Read Replies (1) of 12617
 
Today's Barrons- seems to fill in a few gaps for me in the story that you posted:

Endless Options

To the Editor:

Thank you for Kopin Tan's Feb. 16 Striking Price column on expirationless options. However, an option without expiration isn't "perpetual." There is no such thing as "perpetual" risk for a traded security -- a position that can be bought or sold to open can be sold or bought to close.

The story asks: "How does one price risk for perpetuity? How will traders anticipate and account for changes in, say, dividends and interest rates?" These factors are accounted for every day in the market for other nonexpiring assets, such as equities and currencies. The story poses as unanswerable a question that is already managed every day by markets for nonexpiring assets.

The story stated: "The people behind XPOs wouldn't disclose their proposed pricing model." A requirement that we disclose proprietary trade secrets for publication in order for this product to receive the endorsement of any market participant is unfair and unreasonable. While it is true that Black Scholes & Merton freely published their pricing models, they had no economic stake in the success or failure of option trading.

Today's academic community has become highly sensitive to the economic implications of publication and has become the single greatest source of patented subject matter. Nevertheless, pricing papers were posted on the Website for public inspection. This pricing model was available with a detailed and mathematically precise explanatory piece, as well as available in a working Microsoft Excel model.

Proprietary pricing strategies are inherent to the standard operating procedures found in every investment-banking firm in the world. Further, no company in the world would disclose ongoing patent or product-development filings prior to securing the appropriate intellectual-property protection. Such premature release would cause significant and irreparable economic damage to our investors.

Vergil L. Daughtery III
Economic Inventions
Philadelphia
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