C-Cube Message Board - Msg: 11117946

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Technology Stocks : C-Cube

CUBE 38.88

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12:24 PM EST

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To: Richard Estes who wrote (44309)	8/31/1999 1:14:00 PM
From: Black-Scholes	Read Replies (1) of 50808

Mr. Estes, You're exposing your ignorance in finance. The pioneering work of Fischer Black and Myron Scholes is no less relevant today than it was in 1972. The LTCM episode was not an example of their option pricing theory failing. It was a textbook example of a liquidity squeeze. The hedged positions in LTCM's portfolio (not the directional positions) were completely rational. When LTCM received more money to cover their margin calls, the new donors did not sell-off one position in the original portfolio. Those positions have since gone on to make a lot of money. Myron Scholes would be the first to admit that his theories are not able to take into account high-stress, low-probability scenarios (like Russia unilaterally defaulting on their debt). P.S. Last time I checked, Merton Miller's pioneering work on the irrelevance of firm capital structure was still in tact (Modigliano Miller). I could go on and on with finance theories that have contributed mightily to market portfolio theory. I have found that people who bash education are the ones who are not educated.

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