Post-1987 index put prices consistently exceeded Black-Scholes levels

Evidence

In addition, the price of actual puts has to be paid explicitly and “up-front,” rather than primarily by forgone gains, as in portfolio insurance. As we shall see, after 1987 the price of the index puts most likely to be attractive as a floor to losses has consistently been high higher than it would be in a Black-Scholes world. These “up-front premium” costs could cause “sticker shock” (Voorhees 1988, p. 58), limiting the scale of the purchase of puts. — Donald MacKenzie, An Engine, Not a Camera, 892

Categorization

• XREF: Empirical deviation from Black-Scholes pricing, directly relevant to the performativity thesis: the model pricing the market versus the market pricing beyond the model. — connects to: The 1987 crash permanently broke Black-Scholes fit with market prices — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 150; The post-1987 volatility skew became a permanent feature of index options — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 901; Index option prices clustered around Black-Scholes values despite greater model complexity — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 786 (+3 more)
• QUESTION: Why did put prices stay above Black-Scholes after 1987? Worth chasing the specific explanation the book gives.

Broader Connections

• Index option prices clustered around Black-Scholes values despite greater model complexity #contradicts (0.95) — Donald MacKenzie, An Engine, Not a Camera, 786
• The post-1987 volatility skew became a permanent feature of index options #expands (0.90) — Donald MacKenzie, An Engine, Not a Camera, 901
• Black-Scholes fit option prices well for eleven years, then stopped after 1987 #corroborates (0.90) — Donald MacKenzie, An Engine, Not a Camera, 902
• Option market prices initially diverged from the Black-Scholes model but converged #contradicts (0.90) — Donald MacKenzie, An Engine, Not a Camera, 735
• Black-Scholes legitimized options despite fitting prices only approximately #qualifies (0.80) — Donald MacKenzie, An Engine, Not a Camera, 707