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Technology Stocks : Intel Corporation (INTC)
INTC 38.16+2.5%Nov 7 9:30 AM EST
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To: GVTucker who wrote (179961)12/20/2004 6:18:03 PM
From: Saturn V  Read Replies (1) of 186894
 
As I said, I have yet to see anyone offer any evidence that Black-Scholes isn't highly accurate. This is a perfect example. Black-Scholes is an equity option pricing model. LTCM was a fixed income leveraged hedge fund. They had nothing to do with each other

The common factor is that one of the authors of the Black-Scholes Model, Myron Scholes, was presented as the principal architect of the LCTM strategy, and his name and reputation was used to raise capital for LCTM. This was covered in another PBS documentary, and it was entitled the "Trillion Dollar Bet", and it ran on NOVA several years ago. It was implied that the LCTM investment strategy was dependent upon the BS model.
pbs.org

Black-Scholes is a pricing model which is used by most option market writers. Frequently you find options priced above or below the Black-Scholes Model. After all it is the demand and supply which eventually determine option prices.

I do not like the Black-Scholes Model for estimating the cost of employee options, since at best it is an estimate of the market price of the option. Further the volatility of the stock will becomes a major sticking point.

IMHO a more accurate estimate is the dilution to the existing shareholders. Why dont FASB just monetize the difference between the undiluted earnings per share and the diluted earnings per share, by multiplying this difference by the number of shares, and describe that as the option expense ?
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