DD Support Board and Research Team

[penknee]

I'm not sure the BBC article blames the Black-Scholes for the crash. If your inputs are bad, Black-Scholes will have bad outputs. The loans should never have been made in the first place, throw in 40X leverage and you have a recipe for disaster.


"But is it really fair to blame Black-Scholes for what followed it? "The Black-Scholes technology has very specific rules and requirements," says Scholes. "That technology attracted or caused investment banks to hire people who had quantitative or mathematical skills. I accept that. They then developed products or technologies of their own."

Not all of those subsequent technologies, says Scholes, were good enough. "[Some] had assumptions that were wrong, or they used data incorrectly to calibrate their models, or people who used [the] models didn't know how to use them."