Assumption Quote by Michael Lewis
“Looking into it a bit, Jamie found that the model used by Wall Street to price LEAPs, the Black-Scholes option pricing model, made some strange assumptions.”
About This Quote
Source Book: Flash Boys by Michael Lewis, 2014
The Black‑Scholes model assumes constant volatility and frictionless markets, which rarely hold true in real trading.
In simple terms: Model assumptions are unrealistic.
Key Takeaway
Question model limits before relying on them.
Themes
finance
modeling
risk
Mood
critical
analytical
Type
educational
cautionary
When to use this quote
- trading strategies
- risk management
- investment analysis
- academic teaching
Key Concepts
options pricing
market assumptions
Questions to Reflect On
- What assumptions do you accept without testing?
- How can you adjust models for real‑world frictions?
A Different Perspective
Models can mislead if assumptions are ignored.
![“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/quotes/img-quotes/491/charlie-munger-458_assets_black-scholes-works-for-short-term-optio_947554.jpg)
![“Crucial decisions are made, today as thousands of years ago, in terms of the intuitive guesses and preferences of a few men in positions of authority...[it is] quite likely that the fate of entire societies may be sealed by a series of avoidable mistakes committed by their leaders.” quote by Michael Lewis](https://sms4smile.com/quotes/img-quotes/a59/michael-lewis-705_decision-making_crucial-decisions-are-made-today-as-thou_16888.jpg)
