On Mar 17, 2009, at 11:36 AM, Les Schaffer wrote:
he looked at me and gave me a nice big warm smile, and said, the codes
run and give the clients prices for options, and the clients still
make
money and the codes are new, so all is good. when the clients tire of
these codes and think something else is needed to reinvigorate their
business (or profits, or whatever it is they do over there), they will
want other codes, and evaluate them similarly.
As I recall, there was initially some doubt about whether the classic
Black-Scholes option pricing model was "correct" or not. But it was
widely adopted, and became self-fulfilling. Prices gravitated towards
their warranted BS (ha) levels.
Years ago, I interviewed Columbia University economist Graciela
Chichilnisky. She was, and may still be, a big market
environmentalist. I asked her how you value a rain forest. She said,
you run your model with the rain forest, then without, and the
difference is the "value" of the rain forest. The model she was
talking about is similar to the Black and Scholes model.
Doug
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