Phase I: DISRUPTION
ArbTech has identified the destruction of the Black Scholes Merton Model (BSM) as the best way to create lasting reform of today’s self-destructive global derivatives markets. ArbTech is looking to the book and art work of INFINITY is the ENEMY by t.Rutt to achieve the creative destruction of BSM.
Phase II: INTERVENTION
After the elimination of BSM, ArbTech will help markets to intervene and clean up the fallout. The establishment of rigorous and dynamic arbitrage pricing boundaries will be the only way forward. This can only happen with the creation of markets for expirationless options products based upon ArbTech’s XPOs™.
Phase III: SIMPLIFICATION
Once markets have discovered the true arbitrage boundaries contained in ArbTech’s XPO options price frontier, the longer-dated portions of today’s derivatives markets (i.e., options beyond about 2-3 years) will be absorbed into XPO™ options markets. This will reduce the complexity of derivatives markets and bolster the liquidity and trading volume in those derivatives products that survive into the post-BSM era.
Phase IV: STABILIZATION
With more truthful arbitrage boundaries financial markets will achieve better price discovery and greater stability. The new ability to trade the variable of financial time will help bring balance into the lopsided way that volatility dominated during the Black Scholes Merton Era. Greater market stability will be visible through new instruments such as ArbTech’s TIX™ (Implied Time Index) and HOPE Ratio™ metrics.