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location Charlotte, NC
age 55
visits member for 3 years, 10 months
seen Oct 6 at 13:05

Contract financial developer at a large bank in Charlotte, NC.


Sep
30
awarded  Explainer
Sep
24
awarded  Autobiographer
Aug
7
awarded  Yearling
Aug
7
comment Drawbacks of Black-Scholes option pricing model
@emcor, I have edited to quote salient portions of Cornell's paper and added my commentary.
Aug
7
revised Drawbacks of Black-Scholes option pricing model
added quotes from original paper with running commentary
Dec
19
comment Drawbacks of Black-Scholes option pricing model
Oh, and another question for the Oracle. Was that an American or European put? Any way I can exercise it before I die?
Dec
19
comment Drawbacks of Black-Scholes option pricing model
Or here's another vein that I might leave to the OP. Constructed a 100-step binomial tree, and assume the index goes up or down by sigma each year. Start at 930. What will the put be worth in year 100? In many cases it will be 0, but in the rest it will be > 0 but <= 930. (By the way, I put this into DerivaGem, S=930, K=930, r=1%, q=2%, vol=25%, T=100. For continuous dividends, the 100-year puts should cost $300.32 each.)
Dec
19
comment Drawbacks of Black-Scholes option pricing model
In Buffet's opinion, very long-term options (his example was 100 years) are overpriced by the B-S model. He needs to remember that B-S is predicated on log-normal prices, that is, the ratio of today's price to a future price. Index prices can't go below 0, but they can go down to a tiny fraction of a penny. If I were to engage the Oracle of Omaha on this topic, I'd ask: Who will take the other side of your $1B option with 100 years to expiration and a strike of 930?
Dec
17
comment BS Implied Volatility under Normal returns
To find the theoretical prices then you will have to use a guess at volatility. If you use that theoretical price, your implied volatility will simply be your guess. That volatility, BTW, is annual, log-normal volatility, because of the Ln(S0/K) in the calculation of d1.
Dec
17
answered Drawbacks of Black-Scholes option pricing model
Nov
21
awarded  Editor
Nov
21
revised Finding Probabilities Using The Binomial Model
improved formatting of math terms
Nov
21
suggested approved edit on Finding Probabilities Using The Binomial Model
Nov
21
answered Finding Probabilities Using The Binomial Model
Sep
12
comment SP500 sector weights - how do they change?
Thanks for sharing the reply.
Feb
10
awarded  Yearling
Jan
11
awarded  Enthusiast
Dec
27
answered how expected moves are priced into options
Nov
28
answered Given markets usually fall fast and rise slowly, are there trading mechanisms to take advantage of this?
Nov
11
comment Can options volume have an impact on the price of the underlying asset?
I also recall a case where a court placed docs about a decision concerning a large computer company. While the court did not make the link public before the close of trading that day, some industrious folks figured out what the URL would be, read the documents, and bought a lot of options to speculate on the direction of the company once the link became officially public. Maybe this is not so much option volume as dramatic change in option volume that does not change the price of the asset but rather predicts what the price will do.