Black-Scholes is a know-nothing system. If you know…
“Black-Scholes is a know-nothing system. If you know nothing about value - only price - then Black-Scholes is a pretty good guess at what a 90-day option might be worth. But the minute you get into longer periods of time, it's crazy to get into Black-Scholes. For example, at Costco we issued stock options with strike prices of $30 and $60, and Black-Scholes valued the $60 ones higher. This is insane.”
About This Quote
This interpretation was drafted with AI assistance. It is one reading of the quote, not the author's own explanation.
Black‑Scholes works for short‑term options but becomes unreliable for longer horizons, especially when assumptions break down.
In simple terms: Short‑term pricing works; long‑term is risky.
Key Takeaway
Use Black‑Scholes cautiously for long terms.
Themes
finance
valuation
risk
Mood
cautious
analytical
Type
advice
critical
When to use this quote
- stock option grants
- financial planning
- investment analysis
Key Concepts
option pricing
model risk
Questions to Reflect On
- When should alternative models be used?
- How to adjust for long‑term uncertainty?
A Different Perspective
Model assumptions may not hold in volatile markets.