Re:The First Hedge Fund
by vishnugupta on Tuesday June 25, 2024 @07:47AM
(#40787306)
This reminds me of a story (I don’t know the authenticity of it) where someone before Black-Scholes had invented the Black-Scholes model but didn’t publish rather they were making ton of money by putting it to work.
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That would be Ed Thorp.
https://en.m.wikipedia.org/wiki/Edward_O._Thorp
He wrote a book this great book:
https://www.amazon.com/Man-All-Markets-Street-Dealer/dp/0812...
He’s almost 92 and still around. Here’s a 2022 Tim Ferriss interview:
Re:The First Hedge Fund
by testval123 on Tuesday June 25, 2024 @03:43PM
(#40792721)
It’s also interesting that Thorp met a young Ken Griffin and gave him some advice/materials in starting out.
I don’t think a young Ken Griffin of today would get that same access.
Doubt it. If you go to market with Black-Scholes you will lose money.
https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&d...
"Why We Never Use the Black Scholes Equation" - https://youtu.be/UoGlUZPNouM
"Warren Buffett: Black-Scholes Formula Is Total Nonsense" - https://youtu.be/H4X-4e7fPgI
You would make money because the other tools in use at the time were much worse and people were pricing options poorly. So plenty of opportunities. Hence why Ed thorp did well.
It will not work today. For starters, it makes a bunch of simplifying assumptions. And there are better models. It also misses a number of important dynamics.
There's also a great story that speaks more towards the detriment of using Black-Scholes as an investment thesis.
https://www.amazon.com/When-Genius-Failed-Long-Term-Manageme...