Gatarek:I cannot possibly guess. So tell me: Why did you ever go to the trouble to come up with your model in the first place?It seems to me we have more than enough models in this world, and your competitor must have been offering something that is more scarce.I invented an option-pricing model once when I was practically a teenager, and I very quickly saw that there wasn't much money in it for a fellow in my situation.MP

MobPsycho,The Libor market model is not just another interest rate model -- it is THE interest rate model and in fact much more thanmerely a model.The significance is that the model is derived from a fundamental principle (no arbitrage) which enforcesthe dynamics of the process of forward Libors -- ie. drift determined by volatilities.The only reason why we call this a model at all is that the no arbitrage principle does not enforcethe volatility structure and choices have to be made to specify a particular implementation(deterministic or stochastic factor loadings, jumps or no jumps, parametrization of a sufficiently general class ofprocesses satisfying the general dynamics and calibration to market prices).For example why is the dynamics in the Vasicek or CIR or some other such model the way it is??These are not justified by fundamental principles. These models are ridiculous.Note also that it is not enough to say: "I can prove that my model is arbitrage free."There is a difference betweenArbitrage free implies my approach andMy approach implies arbitrage free.

trc,You're right on. But the volatility structure has first principle dynamics too, so there are still arb opportunitieswhich you're missing.N

The question is not how can we make software harder to copy, the question is how can we make hardware easier to copy? Like, if there is a desirable piece of real estate, why can't we add a zillion floors to the building at that location nearly for free?We no longer need music companies to find, filter, produce, promote, and deliver music. Music can produce, select, and deliver itself on the Internet. All we need is monkeys at musical typewriters. Either that, or spontanoues recombination.So far as drugs, unlike Friedrich Hayek, I am in favor of patents. Because we're not paying for the discovery, but for the selection and filtering. In other words, it should be the people who supervise and participate in the trials who get paid.MP

Come to think of it, there might be a simple test to determine whether Gatarek is a monkey at a typewriter, or a repeat offender: Gatarek, what have you done for me lately?If you have only come up with something as hot as BGM one time, rather than over and over and over, then why should society care if you are above ground or below?MP

Hello!A good article on financial patents is Josh Lerner's "Where does State Street Lead?" It is available on NBER.orgBut other than that, no sympathies for any of the boys that formulated BGM.Just ask the German boys MSS! They published before you, didn't they! And their paper is much more readable! And in the JoF!It is a surprise that BGM got the credit, since they themselves credit MSS in their references!

The main difference I see between academe and industry is the secrecey and lack of peer review in industry whereas peer review and open communication of results is the corner stone of science. It ensures that mistakes are found and everything is sound.The secrecy spawns the amusing fact that everyone can claim to be in possession of some ingenious insights which give him an incredible edgeand lead to large and certain profits and does not have to be afraid to be subject to scrutiny and criticism.The natural consequence is that appearance becomes more important than substance since the substance (if it exists at all) is kept secret.This is the intellectual environment in which fraud can thrive.