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Black-Scholes Formula Is A BS, We Tell You Why
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Black-Scholes Formula Is A BS, We Tell You Why

Aug 18, 2021
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Asymmetric Finance
Black-Scholes Formula Is A BS, We Tell You Why
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The valuation of options has always been standardized following formulas that treat all types of financial assets equally, regardless of the underlying. This means that the only metrics involved in their valuation (price) are the implied volatility, the strike, the risk-free interest rate, the current price of the underlying, as well as a stationarity variable (maturity or expiration date). This means that their valuation only assumes variables from the past, which do not necessarily influence the future (volatility and risk-free rate).

This has meant that historically this model has been heavily criticized:

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