Various Contrivances

Various Contrivances

But the Black-Scholes model is quite different. It uses a model of the future to describe the present. In the absence of this model, or some equivalent of it, present stock options have no reasonable assigned value. What then is the test of the model? Presumably, it is that if one uses it as a guide to buy these options and, as a result, goes broke, one will be inclined to re-examine the assumptions.

The Einsteins of Wall Street