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Wasn't part of the problem during both 29 and 87, the fact that systems
broke down and people started panic selling? The move to decimals is going
to have a serious effect on quoted volume.
Kent
-----Original Message-----
From: The DOCTOR <droex@xxxxxxxxxxxx>
To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
Date: Sunday, August 13, 2000 11:59 PM
Subject: Re: What options to sell?
I don't know about 1929, but 1987 exceeded any statistical measure. Well in
excess of 5 which describes almost anything possible. The question however
is
incorrect in it's nature. When you have events like 1929 or 1987 or major
moves
and non continuous pricing... the model you are using such as binomial or a
B/S
benchmarks to wrong number. If 1987 was inches of a 5+ move than the
reference
point of what would be +/- is invalid. That is why delta hedging in options
dies after 1987. Events cannot be 5 10 or 20 std. deviation moves .. they
are
in fact 2 0r 3 std deviation moves and the perception of expected deviation
alters. For example if the 108 point move on 10/16 of 1987 wasn't
"extraordinary than the 500 point move on 10/19 wasn't really as
"unexpected" of
an event.
There used to be a MIT PhD on the board of the CBOE who quoted 10/87 .. if
you
benchmarked to implied volatility as a 22 std. deviation event. he then
went on
to quote NATO's estimate of a war in Berlin with East German troops and
tanks
breaching the Berlin Wall as 5 std. deviation event. So if you used
traditional
volatility as benchmark 10/87 was much less likely than nuclear war using
the
computer simulation. It is one of the reasons why "traditional" benchmarks
like
historic volatility are only still used by former successful option traders.
Lionel Issen wrote:
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