Job & Education in Quantitative/IT Finance and Maths.   Recruiters : Place your Job & Internship ads


Find a Job

Post your resume

(internship & job)

Jobs & Internships
Finance & Maths

Top ads

Join us on Linked in

Maths-Fi Recruiters

Maths-Fi Job search


Browse our CV Database!

Log in your account

Accédez à la CVthèque Maths-Fi !
Posting Job Offers

Advertising on

Maths-Fi Partners



MSc Directory

Maths Bookstore

Journal & Reviews
Finance & Maths

Software Seminar
Finance & Maths

Pro Orgs
Finance & Maths

Finance & Maths

Internet Resources
Finance & Maths

All our
Job and Internship
in Finance & Maths

CVs/Resumes (Engineer, MSc, PhD)
in Finance & Maths

    Last Update : 01/20/2018   

New : Enjoy the Math Fi RSS feeds

Sélectionnez la catégorie de News Maths-fi :

Articles Maths-fi.
Article: "Why We Have Never Used the Black-Scholes-Merton Option Pricing Formula"

Authors: Espen Gaarder Haug & Nassim Nicholas Taleb, Nov 2007 - Third Version

Source: Social Science Research Network


Options traders use a pricing formula which they adapt by fudging and changing the tails and skewness by varying one parameter, the standard deviation of a Gaussian. Such formula is popularly called “Black-Scholes-Merton” owing to an attributed eponymous discovery (though changing the standard deviation parameter is in contradiction with it). However we have historical evidence that 1) Black, Scholes and Merton did not invent any formula, just found an argument to make a well known (and used) formula compatible with the economics establishment, by removing the “risk” parameter through “dynamic hedging”,
2) Option traders use (and evidently have used since 1902) heuristics and tricks more compatible with the previous versions of the formula of Louis Bachelier and Edward O. Thorp (that allow a broad choice of probability distributions) and removed the risk parameter by using put-call parity. The Bachelier-Thorp approach is more robust (among other things) to the high impact rare event. It is time to stop calling the formula by the wrong name. The paper draws on historical trading methods and 19th and early 20th century references ignored by the finance literature.