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I am not talking about the accuracy of BS. I am well aware that there are
many other option valuation models which take into account the real world
probability distributions, and some other considerations which Simon has
noted in his post. It didn't seem to me that the thread was about the
validity of BS as such, but the reasons why LTCM went belly up.
BS is accurate enough for many practical purposes. I have worked for major
trading organizations and hedge funds and very well know nobody uses BS as
is. Notwithstanding that, LTCM didn't fail because the equation was somehow
"wrong". They failed because they violated many major tenets of trading. In
a strict discussion about choosing the best option valuation models, I would
not claim BS is all you need. Clearly that is not the case.
Regards,
Abhijit
----- Original Message -----
From: "Sven Napolean Montessori" <snm@xxxxxxxxxxxxxxx>
To: <omegalist@xxxxxxxxxx>
Cc: <omega-list@xxxxxxxxxx>
Sent: Wednesday, March 31, 2004 6:14 PM
Subject: Re: Black Schoales
>
> From: "Abhijit Dey" <omegalist@xxxxxxxxxx>
> Date: Wed, 31 Mar 2004 15:43:27 -0600
>
> BS is just fine.
>
> Abhijit
>
>
> BS is based on an unreal model. Egar Peters has written about a much
> more realistic model. Many others have pointed out the near-term and
> long term areas where market prices regularly diverge from BS. Within
> this mailing list there are clearly people with far different time
> horizons, who view the result of a BS calculation equally differently.
>
> Richard Feynman (who got a real Nobel Prize and not a fake one) used
> to say something along these lines:
>
> "If it disagrees with experiment, it's wrong. It doesn't matter how
> many Nobel prizes have been won."
>
>
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