Broker collateral rules made Black-Scholes’ discounting assumption inapplicable to warrant short sales.

Evidence

In the warrant markets in which Thorp traded, the proceeds of the short sale of a warrant were retained in their entirety as collateral by the broker from whom the warrant had been borrowed until the warrant was repurchased and returned. The proceeds were therefore not available immediately to the seller, as Black and Scholes assumed. — Donald MacKenzie, An Engine, Not a Camera, 559

Categorization

• XREF: connects to: The Black-Scholes equation’s assumption of known underlying prices failed on NASDAQ’s dealer structure. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 130