Pricing the future

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quantropy
Posts: 131
Joined: Sat Jan 28, 2017 10:38 am

Pricing the future

Postby quantropy » Wed Jun 27, 2018 5:12 am

Why I looked at this book
I've heard of the Black-Scholes equation, but I'm interested in finding more about it. How much is it related to the Gaussian model of risk, whose widespread use was blamed for the 2008 financial crisis, and of which Henri Poincaré had given his 'Panurge's sheep' warning a century before in 1908? And in 1998 the Long-Term Capital Portfolio hedge fund, which used the Black-Scholes model, collapsed. Did complicated mathematics hide the flaws in the model? I hope that this book will explain what went wrong.

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User avatar
quantropy
Posts: 131
Joined: Sat Jan 28, 2017 10:38 am

Re: Pricing the future

Postby quantropy » Wed Jun 27, 2018 6:48 pm

First Impressions
The book tells of how the rise of financial trading, such as the Dutch tulip mania, or the selling of shares in overseas trading companies, led to the need for some sort of options trading. The Black-Scholes equation is presented as the finding of an exact formula for options prices, something which traders had sought for several centuries. So am I right is assuming that it is dependent on assumptions about risk? I'm looking to the rest of the book to explain this to me.


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