The model’s early assumptions were wildly unrealistic, constraining hedging practice.

Evidence

The effects of the use of the Black-Scholes-Merton model in arbitrage thus seem to have formed a direct performative loop between “theory” and “reality.” Markets were, however, also changing toward greater conformity to the model for reasons in which the model was not directly implicated. In 1973, Black, Scholes, and Merton’s assumptions were wildly unrealistic. Stock, for example, could not be bought entirely on credit: it had been the constraint this placed on market makers’ capacity to hedge using stock that Rissman had been trying to have removed during his unsuccessful visit to the Federal Reserve. — Donald MacKenzie, An Engine, Not a Camera, 739

Categorization

• QUESTION: When and how were the credit/stock-borrowing constraints later lifted, moving markets toward the model’s assumptions?
• XREF: connects to: The model’s assumptions contradicted actual early-1970s market conditions on every point. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 628