I have even met some foolhardy alternative investment aka asset managers that use the BSOP Black Scholes Option Pricing Model Calculator to price oil exploration, drilling and other natural resource mining risks.
BS Option Pricing Model like its cousin the CAP-M is widely misused
BS Option Pricing Model like its cousin the CAP-M is widely misused
Neither BSOP nor CAP-M were invented to price the risks of tangible engineering projects and other physical activities of commercial nature such as mining, drilling, real estate ventures, REITs, Securitized Toxic Assets, Embedded Bonds, etc.
Model Abuse leads to Modelling Risk!
Model Abuse leads to Modelling Risk!
Although the #BSOP Model has paved the way forward in the domains of Quantitative Finance, Investment Portfolio Management, and Mathematical Trading, like no other academic invention,, it's abuse and misuse, was never controlled.
#LTCM is a case study and an e.g. of that failure!
#LTCM is a case study and an e.g. of that failure!
BSOP model has, however, influenced other areas within financial economics, portfolio management, trading and #risk management, over the years.
For, e.g. the option pricing approach to computing default risk has led to errors in bank risk capital estimation.
#KMV #Moody #Merton
For, e.g. the option pricing approach to computing default risk has led to errors in bank risk capital estimation.
#KMV #Moody #Merton
The #ASRF Model is flawed!
@BIS_org on purpose has encouraged its use to compute economic capital.
The very assumption of applying portfolio invariant bank weighted risk capital computational method has led to both overshooting and undershooting of estimations.
#ModelRisk
@BIS_org on purpose has encouraged its use to compute economic capital.
The very assumption of applying portfolio invariant bank weighted risk capital computational method has led to both overshooting and undershooting of estimations.
#ModelRisk
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