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To: GVTucker who wrote (179961)	12/20/2004 5:00:54 PM
From: Lizzie Tudor	Read Replies (1) \| Respond to of 186894

sheesh now I am beginning to wonder if I've lost my memory. I don't know if you were there but we discussed this show on the cisco thread in 2003 when it aired. I thought it was frontline, maybe it was something else. I was interested in that they interviewed either black or scholes (don't recall which one) who was currently employed at stanford out here. I wondered how that guy could sleep at night given the tenacity the executives use to go against options exp. Well, I will defer to you since you obviously know more about the subject of the actual application of BS than me, however this PBS news show made a pretty good case against BS as a predictor.

To: GVTucker who wrote (179961)	12/20/2004 6:18:03 PM
From: Saturn V	Read Replies (1) \| Respond to 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 ?

To: GVTucker who wrote (179961)	12/20/2004 11:23:57 PM
From: Lizzie Tudor	Read Replies (1) \| Respond to of 186894

re: Black Scholes OK, NOW I have the right show. It wasn't frontline, it was NOVA. here it is, did anybody see it? Trillion Dollar Bet Go to the companion Web site In 1973, three brilliant economists, Fischer Black, Myron Scholes, and Robert Merton, discovered a mathematical Holy Grail that revolutionized modern finance. The elegant formula they unleashed upon the world was sparse and deceptively simple, yet it led to the creation of a multi-trillion dollar industry. Their bold ideas earned Scholes and Merton a Nobel Prize (Black died before the prize was awarded) and attracted the elite of Wall Street. In 1993, Scholes and Merton joined forces with John Meriweather, the legendary bond trader of Salomon Brothers. With 13 other partners, they launched a new hedge fund, Long Term Capital Management, which promised to use mathematical models to make investors tremendous amounts of money. Their money machines reaped fantastic profits, until their theories collided with reality, and sent the company spiraling out of control. The crisis threatened to bring markets around the world to the brink of collapse. Join NOVA in the quest to turn finance into a science. Plus, trace the little-known history of predicting financial markets and go to work with some successful modern traders who rely on intuition as well as mathematical models. Original broadcast date: 02/08/2000 Topic: mathematics, social sciences/miscellaneous pbs.org