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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 78.16

+0.2%

Dec 26 9:30 AM EST

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To: Lizzie Tudor who wrote (65487)	5/14/2004 12:28:52 PM
From: GVTucker	Read Replies (1) of 77400

Lizzie-- Black Scholes does not predict what the future value of an option will be. It only measures what the current value of an option is. Just because an option's value might decline to zero doesn't mean the option wasn't worth something before. If you think Black Scholes does such a rotten job of pricing options (and, it seems, consistently overpricing the options), there are thousands of contracts on the exchanges whose value is based solely on Black Scholes. You can sell 'em all and make a ton of money. There were a bunch of people back in the 70's that thought the same thing. They lost their shirts, and guys at CRT and O'Connor (who believed in the model) made hundreds of millions of dollars off them.

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