The economic model that bit back

The Black-Scholes model for determining the value of an option, gave rise to the oddball world of financial derrivatives. Investors formed Long Term Capital Partners to use Black-Scholes to predict and locate arbitrage opportunities on a global scale or, “as a gigantic vacuum cleaner sucking up nickels from all over the world.” What followed was a classic exercise in what happens when your model is not robust with respect to real world events.

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This entry was written by Bill Humphries and posted on February 23, 2000 at 12:00 am and filed under Uncategorized. Bookmark the permalink. Follow any comments here with the Atom feed for this post. Both comments and trackbacks are currently closed.