"Since its introduction in 1973 and refinement in the 1970s and 80s, the model has become the de-facto standard for estimating the price of stock options"
...and has caused a lot of catastrophic losses. The formula depends on a normal distribution and financial returns are random but not independent. They are not normal.
The formula works, mostly, but when it does not it is worse than useless. Financial gains and losses are in the tails, and the tails are no where near normal
...and has caused a lot of catastrophic losses. The formula depends on a normal distribution and financial returns are random but not independent. They are not normal.
The formula works, mostly, but when it does not it is worse than useless. Financial gains and losses are in the tails, and the tails are no where near normal