I'm an amateur, but I can solve and understand Black-Scholes,
since this is nothing but Fokker-Planck equation in Theoretical
Physics (that's my degree). I taught
the underlying math for 5 years, including probability,
statistics, linear algebra, and PDEs. No, not in finance.
I do think the pros are missing it completely, robotic
trading is a huge bubble waiting to pop! Black-Scholes is
not a holy grail, and it does have a built in flaw, which
was papered over by the Fed for quite some time, and
remains the key reason for this deep instability and the
emergence of robotic bubble. The Fed used sand paper on the
tails of the distribution function, leading to INCREASED
systemic risk. You can't do that, as this increases the
probability of tails, a lot. Now they have to apply
it constantly, otherwise the unstable system will crash.
All IMHO, and I really appreciate your input.
The market today is not a random walk, it is a deeply
unbalanced POS, waiting for it's time to crash. BWDIK?
What happened Yesterday was a fat tail tremor, and unless liquidity
is applied, it could grow into a systemic issue shortly. |
