A Quote by Michael Lewis

Looking into it a bit, Jamie found that the model used by Wall Street to price LEAPs, the Black-Scholes option pricing model, made some strange assumptions.

Michael Lewis

Quote Topics

Assumptions Bit Black Found Jamie Leaps Looking Made Model Option Price Pricing Scholes Some Strange Street Used Wall Wall Street

Quote Author

Michael Lewis
American - Author
Born: October 15, 1960

The longer-term the option, the sillier the results generated by the Black-Scholes option pricing model, and the greater the opportunity for people who didn't use it.

Michael Lewis

My principal contribution to the Black-Scholes option-pricing theory was to show that the dynamic trading strategy prescribed by Black and Scholes to offset the risk exposure of an option would provide a perfect hedge in the limit of continuous trading.

Robert C. Merton

Black-Scholes is a know-nothing system. If you know nothing about value - only price - then Black-Scholes is a pretty good guess at what a 90-day option might be worth. But the minute you get into longer periods of time, it's crazy to get into Black-Scholes. For example, at Costco we issued stock options with strike prices of $30 and $60, and Black-Scholes valued the $60 ones higher. This is insane.

Charlie Munger

The model used by Wall Street to price trillions of dollar's worth of derivatives thought of the financial world as an orderly, continuous process. But the world was not continuous; it changed discontinuously, and often by accident.

Michael Lewis

Black-Scholes works for short-term options, but if it's a long-term option and you think you know something [about the underlying asset], it's insane to use Black-Scholes.

Charlie Munger

Fixing is the illness model; acceptance is the identity model; which way any family goes reflects their assumptions and resources.

Andrew Solomon

Please remember one lesson of the 20th century. One cannot force happiness, impose happiness on nations by imposing any kind of utopia on others. The Communist model of society was a kind of imposed utopia for which the Russian people in particular paid a great price. Still, sometimes we see that attempts are being made to impose some other kind of model on the entire world - maybe a Westernized or Americanized model... This is not the way to go because this can only create conflict.

Mikhail Gorbachev

In the interest rate area, traders have for a long time used a version of what is known as Black's model for European bond options; another version of the same model for caps and floors; and yet another version of the same model for European swap options.

John Hull

What Wall Street is, they're market makers. Wall Street's business model is making money on velocity of money. They're a click industry. That's what Wall Street is. They make a lot of money when there's a lot of turnover. And they make a lot of money when that velocity is fast.

Laurence D. Fink

A model is a good model if first it interprets a wide range of observations in terms of a simple and elegant model, and second if the model makes definite predictions that can be tested, and possibly falsified, by observation.

Stephen Hawking

As a model, I really stand for not being a model, if that makes sense. When I started, the whole idea of the model was very different; it was a bit stuck-up. Not stuck-up, but no one was trying to have fun, or not even have fun, but be willing to smile.