What a load of hogwash. LTCM's problem wasn't anything to do with the Black-Scholes model. In fact far from it, LTCM's market risk management was very good (fo

What a load of hogwash. LTCM's problem wasn't anything to do with the Black-Scholes model. In fact far from it, LTCM's market risk management was very good (for its time). Where they became unstuck was in liquidity and capital risk management. Where the banks got unstuck wrt LTCM was in credit risk management. Where the banks didn't learn the lessons of LTCM was in them still not being good enough at liquidity and capital risk management come 2008. And one more tangential point as I see this reasonably regularly. The key insight from Black-Scholes isn't the use of normal vols. It was known pretty much straight away that a lot of market where it was used weren't normal (in the probabilistic sense). The key insight was to use the no arbitrage concept for pricing derivatives. This was and is a hugely powerful tool and was an asset to financial management (excuse the pun).