Long Calls/Puts vs. Spreads (Long on the Wings)

Ha ha - you're as persistent as ever maw.

I guess at the end of the day you either see the sense in Taleb's article or you don't. I just don't. Apparently you do. I suppose we'll have to leave it at that.

The one area where I have no opinion is whether or not a similar model existed prior to Black and Scholes - that is, whether or not this invention was improperly attributed to them.

I spoke once with a professor of finance who had written an article on Boness. According to him, the Boness model required an input equal to the price at which the observer thought the underlying would be at expiration of the option. Obviously that cannot be observed, and makes the Boness model quite different from the BS. When I told this professor that Haug has an Excel implementation of Boness' model that requires no such input and gives identical results to BS, he told me that Haug "doesn't know what he is talking about."

Do you have any information independent of Haug and Taleb as to the truth or falseness of this?

Just one more question - where on earth did you get the idea my name is Dave?
 
Dmo,

You are the first guy I read always talking about implied volatility and who delta hedged out of the money put with Black and Scholes one. In model we trust.:p

Useless to say that implied volatility notion is only there to prove the model doesn't fit reallity.
 
I didn't see this message, sorry.

Quote from dmo:

Ha ha - you're as persistent as ever maw.

I guess at the end of the day you either see the sense in Taleb's article or you don't. I just don't. Apparently you do. I suppose we'll have to leave it at that.

The one area where I have no opinion is whether or not a similar model existed prior to Black and Scholes - that is, whether or not this invention was improperly attributed to them.

I spoke once with a professor of finance who had written an article on Boness. According to him, the Boness model required an input equal to the price at which the observer thought the underlying would be at expiration of the option. Obviously that cannot be observed, and makes the Boness model quite different from the BS. When I told this professor that Haug has an Excel implementation of Boness' model that requires no such input and gives identical results to BS, he told me that Haug "doesn't know what he is talking about."

Do you have any information independent of Haug and Taleb as to the truth or falseness of this?

Just one more question - where on earth did you get the idea my name is Dave?
More...

Take a look at Bachelier thesis. We are in 1900. You would find everything you need. Bachelier was the first guy to model stochastic process with brownian motion (arithmetic one) 4 years before Einstein did.
As you got the price, you got the delta. If you got the delta you got the hedge (2 different prices, and delta is just variation rate with respect to spot).

Dmo, that's because I'm clever.:D
 
I'm not paid by neither Taleb nor Haug, and my opinion is that they wanted to argue against academic gurus.
In fact, their point were the knowledge and acknowledge that risk can't be globally wiped out by a dynamic replication strategy, as gurus claimed. Models can't be taken as a given and basically people who were talking about risk, never managed one or failed with well known consequences (LCTM collapse with Merton and Scholes).
 
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