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Black-Scholes overvaluing/undervaluing?

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	Black-Scholes overvaluing/undervaluing? by Ralf-18 :: Rate this Message: Reply to Author \| View Threaded \| Show Only this Message Hi, somewhere I read that Black-Scholes Model would apparently have a problem of overvaluing deep out-of-the-money calls and undervaluing deep in-the-money calls. I'm not sure if that is really the case. Can someone confirm this, with maybe a practical example? Thx ------------------------------------------------------------------------------ Let Crystal Reports handle the reporting - Free Crystal Reports 2008 30-Day trial. Simplify your report design, integration and deployment - and focus on what you do best, core application coding. Discover what's new with Crystal Reports now. http://p.sf.net/sfu/bobj-july _______________________________________________ QuantLib-users mailing list QuantLib-users@... https://lists.sourceforge.net/lists/listinfo/quantlib-users
	Re: Black-Scholes overvaluing/undervaluing? by Dimathematician :: Rate this Message: Reply to Author \| View Threaded \| Show Only this Message There's nothing wrong with Black-Scholes here. I think what you mean might be the calculation of deep out-of-the-money call prices from implied volatilities. The same for in-the-money. Yes there are numerical issues here, as the precision of the normal cdf gets worse since it is numerically calculated 2009/9/13 Ralf M. <rm@...> Hi, somewhere I read that Black-Scholes Model would apparently have a problem of overvaluing deep out-of-the-money calls and undervaluing deep in-the-money calls. I'm not sure if that is really the case. Can someone confirm this, with maybe a practical example? Thx ------------------------------------------------------------------------------ Let Crystal Reports handle the reporting - Free Crystal Reports 2008 30-Day trial. Simplify your report design, integration and deployment - and focus on what you do best, core application coding. Discover what's new with Crystal Reports now. http://p.sf.net/sfu/bobj-july _______________________________________________ QuantLib-users mailing list QuantLib-users@... https://lists.sourceforge.net/lists/listinfo/quantlib-users ------------------------------------------------------------------------------ Let Crystal Reports handle the reporting - Free Crystal Reports 2008 30-Day trial. Simplify your report design, integration and deployment - and focus on what you do best, core application coding. Discover what's new with Crystal Reports now. http://p.sf.net/sfu/bobj-july _______________________________________________ QuantLib-users mailing list QuantLib-users@... https://lists.sourceforge.net/lists/listinfo/quantlib-users
	Re: Black-Scholes overvaluing/undervaluing? by Luigi Ballabio :: Rate this Message: Reply to Author \| View Threaded \| Show Only this Message On Sun, 2009-09-13 at 17:53 +0200, Ralf M. wrote: > somewhere I read that Black-Scholes Model would apparently > have a problem of overvaluing deep out-of-the-money calls > and undervaluing deep in-the-money calls. > I'm not sure if that is really the case. Would that be QuantLib's implementation, or Black-Scholes itself? Luigi -- Testing can never demonstrate the absence of errors in software, only their presence. -- W.E. Dijkstra ------------------------------------------------------------------------------ Let Crystal Reports handle the reporting - Free Crystal Reports 2008 30-Day trial. Simplify your report design, integration and deployment - and focus on what you do best, core application coding. Discover what's new with Crystal Reports now. http://p.sf.net/sfu/bobj-july _______________________________________________ QuantLib-users mailing list QuantLib-users@... https://lists.sourceforge.net/lists/listinfo/quantlib-users