“BICs 4 Derivatives”, Newtonian or Einsteinian Revolution for Derivatives Analysis and Markets?

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A new concept in derivatives pricing, hedging and trading called BICs (Basis Instruments Contracts) appears to be the most significant theoretical and practical contribution to derivatives analysis since the Black Scholes analysis or even since financial mathematics pioneer Louis Bachelier.

A new concept in derivatives pricing, hedging and trading called BICs (Basis Instruments Contracts) appears to be the most significant theoretical and practical contribution to derivatives analysis since the Black Scholes analysis or even since financial mathematics pioneer Louis Bachelier.

A review on the http://www.4bics.org website reads: “I wanted to say this is Economics Nobel prize and/or Mathematics Fields Medal material, but that would be presenting this at a discount” RM, New York.

In a release of two book sets titled BICs 4 Derivatives Vol. I: Theory & BICs 4 Derivatives Vol. II: Applications, an author named Obi-Wan Yoda with a bio in the continuation of the Star Wars sequel makes the case.

The BICs analysis provides a compellingly useful and exhaustive redefinition of derivatives and trivializes or sidelines current methods for derivatives pricing and hedging, including PDE/PIDE methods, binomial/trinomial trees or Monte-Carlo.

The BICs analysis also provides a new approach for derivatives hedging. In markets were BICs are traded, static hedges of any derivatives contract may be obtained. When BICs in a BIC basis are not available, the BICs analysis still provides compelling cross-hedging strategies in a measurably more effective manner than current “Greeks” based hedging methods.

Establishing BICs markets would represent for established derivatives exchanges or trading venues, a significant growth opportunity, as they would represent the ultimate solution for end-users risk management needs.

The advent of BICs would substantially reduce the cost of derivatives hedges, therefore substantially improving the competitiveness of companies that use them. For accounting purposes, it would also bring more transparency to the manner in which corporate assets and liabilities, in particular derivatives, are marked to market. More specifically, compliance with FAS 133,138 and its implementation directives will become more transparent.

In an environment where derivatives miscounting scandals often shake the very existence of some of the world’s largest companies, this is indeed a compelling development.

More information on BICs, including excerpts of the BICs books, summaries, table of contents and ordering information can be obtained at: http://www.4bics.org.

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Paul Kriegman
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