Pre-Black-Scholes option models relied on unmeasurable parameters
Evidence
Earlier academic work on options (e.g., Malkiel and Quandt 1968, 1969) had involved either empirical, econometric analyses or elaborate theoretical models that contained parameters whose values could not be measured in any straightforward way. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 95
Categorization
- XREF: connects to: Pre-Black-Scholes option valuation needed investor risk attitude as an unobservable input — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 536; Black-Scholes is a continuous-time limit of the binomial model — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1289; The arbitrage argument produces the Black-Scholes partial differential equation. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 95
Related
- Pre-Black-Scholes option theory always hinged on unobservable expected returns. (similarity 0.88)
- The Black-Scholes equation excludes expected returns and risk aversion entirely (similarity 0.88)
- Economists favored Black-Scholes-Merton for its minimal unobservable parameters and efficient-market grounding. (similarity 0.86)
- The Black-Scholes model reduces to a known physics equation solvable by hand (similarity 0.85)
- All later option-price models are consistent refinements of Black-Scholes-Merton (similarity 0.85)
- Black-Scholes legitimized options despite fitting prices only approximately (similarity 0.85)
- Realistically, no unaided human could calculate a Black-Scholes option price by hand (similarity 0.85)
- Option prices are set entirely by arbitrage, independent of risk attitudes or probabilities (similarity 0.84)
- Black-Scholes-Merton pricing fit observed options data only approximately at launch. (similarity 0.84)
- Modern options pricing derives from arbitrage logic, not directional beliefs. (similarity 0.84)
- Implied volatility turned options of disparate stocks into one comparable metric. (similarity 0.84)
- Pre-Black-Scholes option valuation needed investor risk attitude as an unobservable input (similarity 0.83)
- Attempts to infer investor risk attitudes from market prices failed empirically (similarity 0.83)
- Option market prices initially diverged from the Black-Scholes model but converged (similarity 0.83)
- The arbitrage argument produces the Black-Scholes partial differential equation. (similarity 0.83)
Broader Connections
- Pre-Black-Scholes option valuation needed investor risk attitude as an unobservable input
#corroborates(0.95) — Donald MacKenzie, An Engine, Not a Camera, 536 - Black-Scholes is a continuous-time limit of the binomial model
#complicates(0.80) — Donald MacKenzie, An Engine, Not a Camera, 1289 - The arbitrage argument produces the Black-Scholes partial differential equation.
#expands(0.80) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 95