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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (57644)	4/27/2002 1:29:32 PM
From: jjs_ynot	Respond to of 99280

Some of the assumptions that Mertin and Scholes made in developing the so-called Black-Scholes model don't necessarily hold in all markets and thus the reason derivatives firms get in trouble. The suspect assumptions: - A liquid market, that is thus not subject to short squeezes or "Black Monday" type panics - Time continuity in the statistical model they chose, with no step functions. That is, gaps up or down are not treated (Gaussian distribution) - Equal probability up or down (the efficient market hypothesis) which is not necessarily correct in strongly trending markets. Regards, Dave