trategies).
All of the above informational consequences of trading in a real security are absent if the real security is replaced by dynamic hedging strategies alone. How does a purchaser of a given strategy (such as a synthetic put) know the cost of insurance? Surely the cost depends on how many other people are planning to carry out similar stock selling and purchasing plans in the future. What mechanism exists to aggregate across people the information about future trading plans which will determine the cost of the current insurance strategy?
The marketing of strategies rather than securities has far reaching implications for the volatility of the underlying stock and futures markets. There is no market force or price information which ensures that strategies can be implemented, or which informs the user of the total cost of implementation. In contrast, the purchaser of a security knows the cost of his purchase. For the economy as a whole, the price of the security reflects the cost of impleme
...