'Finance Focus' event organised by Wilmott magazine and 7city and sponsored by d-fine presented by Elie Ayache of ITO33:
How can derivative pricing be founded when the derivative pricing models all rely on a fixed collection of states of the world (e.g. values of the underlying, or other state variables) and the subsequent trading of those derivatives in fact never stops expanding the collection of states of the world? For instance, Black-Scholes assumes the underlying as sole state variable, yet trading options with Black-Scholes will almost certainly create new states of the world, i.e. stochastic implied volatility. Like all the sciences falling under the umbrella of the metaphysics of presence, option pricing theory cannot avoid this schema. There can be no foundation without presence. Yet the bigger picture of derivative pricing-AND-trading (in other words, the full story of calibration AND recalibration) is here to teach us that there is a non-foundation below the foundation, what we would call, following Derrida, the "non-Greek" non-foundation. Once we start looking at the derivatives from a non-foundational, i.e. deconstructed, point of view, it might appear to us that they are less derivative and more primordial to our overall understanding of the market than we think.
About Elie Ayache: Elie Ayache graduated from Ecole Polytechnique in 1987. He then held a position at Banque Indosuez in Paris as one among the first option traders on the floor of MATIF. In 1990, Elie, co-founded Transoptions Finance, a subsidiary of Credit Agricole, which specialised in option market making. He personally stood on the floor of LIFFE, in the Bund option pit, until 1995. From 1996 to 1998, Elie headed the R&D of Dexia Asset Management in Paris, where he developed derivatives pricing models. In 1998, Elie created ITO33, a software company specialising in mathematical models and numerical solutions for derivative instruments, particularly Convertible Bonds and volatility smiles.