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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 78.03

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Dec 24 12:59 PM EST

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To: Lizzie Tudor who wrote (65478)	5/14/2004 11:22:39 AM
From: GVTucker	Read Replies (2) of 77400

Lizzie, the Black Scholes model does indeed work with new issues. The criticism of Black Scholes is one of the more comical things in this whole expensing episode. A large majority of the expensing opponents, all the way from Lizzie to Craig Barrett, often mention problems with Black Scholes as a reason to be against expensing. This, is spite of the fact that Black Scholes WORKS! It is one of the most reliable theories in academics, and has survived decades in the real world BECAUSE it works. It is used to price every single option in the world, whether it is an option on a listed stock, crude oil futures, private equity, implicit calls on bonds, you name it. There are plenty of academic theories that have holes in them, for sure. Criticize CAPM if you want, it's easy. But criticize Black Scholes and you just highlight your ignorance.

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