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Strategies & Market Trends : Expirationless Options (XPOs)- The Next Big Thing
XPO 141.09+0.7%Dec 24 12:59 PM EST
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To: Tech Master who wrote (9)7/6/2005 1:24:17 PM
From: Tech Master  Read Replies (1) of 60
 
With all due respect to Dr. Josh Lerner of Harvard as to whether XPOs are patentable in the HedgeWorld article posted prior to this message, it is important to note that Dr. Lerner is neither an attorney nor educated in finance.

Two of the requirements for patentability are that the invention be "novel" and "useful". While it is true that Paul Samuelson mentioned "perpetual American warrants" in his 1965 paper, the pricing addendum creates prices greater than the underlying asset which is clearly impossible in any efficient market, rendering them not useful. It is also true that Samuelson and Merton's 1969 paper, as well as Black-Scholes (1973) and Merton (1973) also mentioned "perpetual American warrants", but also stated that they "must" be equal to the underlying asset in price. Again, not only impossible, but not "useful".

Therefore, his argument fails on several grounds:

1. The papers cited "warrants", not "options". Only a company which issues the underlying stock can issue a warrant. Anyone can sell an option. (A warrant is a particular type of option, not the reverse).

2. The papers mentions required that the "perpetual American warrant" be priced at or above the underlying stock price at all strike prices - not only impossible under Arbitrage Pricing Theory, but also "not useful" in that no one would pay more for a derivative than they would for the actual asset.

3. None of these papers possessed the required "inventive step" of "interaction with the real world" - therefore they cannot be prior art.
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