re: The Bank and Holy Grail System ... andrew
Hi andrew ... good to see you back ...
As we know, Black, Scholes and later in collaboration with Merton, developed the derivatives mathematical 'zero risk' concept which initially worked and with amazing success ... the possibility of 'stripping' the market of billions at will was awesome ... the financial collapse of FSU created the international cash crisis which domino like, brought down the 'house of cards' ... Barings was another example of similiar rogue activities ...
I wonder had that event not stopped this spurious activity (although Enron treasury activities which led to it's collapse suggest corporations are still keen to participate...) just what sort of market we would have today ... bit frightening really.
Having explored the concept, I agree with you that mathematically, simply hedging risk to zero according to BSOPM theory (or variant) to simply contra positions ultimately at best can only result in 'friction' as a net cost.
I have been developing over a number of years my own concept that goes the next step on from Hoadley ( I have written my own) that undertakes BSOPM modelling and sensitivity analysis across a range of derivative offerings and simulaneously providing forward profit projections based on my risk profile. (based on 'crunching' I/Vol and Fib)
Pretty sexy when it works ...
This is currently being developed to generate projected profit analysis according to the above utilising 'straddles' as the instrument in a unique way ...
It is interesting that a number of HC's are working quietly in their own ways on various strategies/concepts which in itself is the journey for the mathematically inclined.
