Black-Scholes works for short-term options, but if it's a…
![“Black-Scholes works for short-term options, but if it's a long-term option and you think you know something [about the underlying asset], it's insane to use Black-Scholes.” quote by Charlie Munger](https://sms4smile.com/q/img-quotes/491/charlie-munger-458_assets_black-scholes-works-for-short-term-optio_947554.jpg)
“Black-Scholes works for short-term options, but if it's a long-term option and you think you know something [about the underlying asset], it's insane to use Black-Scholes.”
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 is unsuitable for long‑term options when you claim insight into the underlying asset; it becomes irrational.
In simple terms: Black‑Scholes fails for long‑term speculative bets.
Key Takeaway
Use appropriate valuation models.
Themes
finance
risk
valuation
Mood
cautious
analytical
Type
financial
educational
When to use this quote
- portfolio management
- investment strategy
- risk assessment
Key Concepts
Option pricing
model risk
long‑term investing
Questions to Reflect On
- When is Black‑Scholes still useful?
- How to assess model suitability?
A Different Perspective
It may overlook cases where the model is adjusted for long horizons.