BICs - Functional Notionals & Prices

BICs Functional Notionals Functional Prices : 

BICs Functional Notionals Functional Prices What does it all Mean? Why? How? Phil Kongtcheu a.k.a Obi-Wan Yoda

What does it all Mean?The usual practice : 

What does it all Mean?The usual practice Usually with a liquid financial contract, one has a standardized unit contract with a given numerical unit price and numerical notional amount. For example, one can buy 10 tomatoes at $1 for each tomato. 10 in the example is the notional amount. $1 in the example is the unit price. Indeed the notional 10 and the unit price 1 are both numbers.

What does it all Mean?What the BICs framework provides? : 

What does it all Mean?What the BICs framework provides? The BICs framework provides for static hedging of payouts that are functions of observable outcomes spread out on a time line

How?The Enabling factor : 

How?The Enabling factor Allowing unit prices and notionals of replicating contracts (for example BICs) to also be temporary functions of observable outcomes spread out on an iteratively compressed or moving time line

How?The Trick! : 

How?The Trick! The Functional Notional and unit prices become actual numbers by the time they are to be paid out as premium or payouts

Intuitive analogy : 

Intuitive analogy Futures/forwards help against fluctuations of the price of an underlying by fixing beforehand said price BICs functional notionals & prices help hedge against pricing models fluctuations by fixing beforehand all derivatives prices implied by said pricing models

Derivatives Hedging Problems BICs Solve : 

Derivatives Hedging Problems BICs Solve What to do when you cannot have access to the security that is the underlying ?

Derivatives Hedging Problems BICs SolveExamples : 

Derivatives Hedging Problems BICs SolveExamples Stock Short Sale ban precluding delta hedge for options Currency trading restrictions hedge for options trading General market illiquidity on particular underlyings or assets at dynamic hedging times

Derivatives Hedging Problems BICs Solve : 

Derivatives Hedging Problems BICs Solve When you want to reduce derivatives hedging transaction costs by eliminating the need and cost of frequently rebalancing your portfolio

For More Information : 

For More Information Go to: http://kongtcheu.blogspot.com http://tinyurl.com/cyxhpa http://tinyurl.com/cfapm5 Buy the book: BICs 4 Derivatives Volume I: Theory Phil Kongtcheu a.k.a Obi-Wan Yoda