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Lots? Can you name a few beyond Black-Scholes that are applicable to derivatives trading? From looking at the list of Nobel prize winners, I can't. Interesting
by Confusion 17y ago
Lots? Can you name a few beyond Black-Scholes that are applicable to derivatives trading? From looking at the list of Nobel prize winners, I can't.
Interestingly, in a course on statistical physics, the prof showed that by performing the correct transformations on the central equation of the Black-Scholes model, you can actually reduce it to a plain diffusion equation. He wondered whether it was reasonable to hand out a Nobel prize for that.
- maurycy 17y agoTo name a few: Engle, Granger, Merton, Markowitz, Miller, Sharpe. Shortly, they're used frequently in the area of risk management. With some good faith you can also take into account the assymetric informations study, so Akerlof, Spence, Stiglitz, Vickrey; also, if you're big enough to move the prices by your orders, the game theory applies: Selten, Nash, Harsanyi. As for the Black-Scholes, from what I understand, the biggest insight is that the volatility of the stock is basically the risk. The problems with the non-constant volatility, led to studying different (ARCH, GARCH) models and work appreciated by a Nobel in 2003.
- KonaB 17y agoInterestingly, when Markowitz invested his own money, he invested 50% in stocks, and 50% in bonds. If the creator did not believe in his own creation, I don't think anyone should. BTW, Engle's work is kind of useless in the real-world...