Black Quote by Michael Lewis
“The longer-term the option, the sillier the results generated by the Black-Scholes option pricing model, and the greater the opportunity for people who didn't use it.”
About This Quote
Source Book: The Big Short, 2010
The Black‑Scholes model becomes less reliable over longer horizons, producing absurd results and creating opportunities for those who avoid it.
In simple terms: Long‑term use of Black‑Scholes gives weird results and chances for others.
Key Takeaway
Question the model’s long‑term assumptions.
Themes
finance
model risk
opportunity
Mood
analytical
critical
Type
financial
educational
When to use this quote
- investment
- risk management
- trading
- financial analysis
- academic research
Key Concepts
Black‑Scholes
pricing models
long‑term horizons
Questions to Reflect On
- What alternatives exist for long‑term option pricing?
- How can you detect model breakdowns?
A Different Perspective
Model may still be useful in short term.
![“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)
