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2015 | OriginalPaper | Chapter
Living in a Black-Scholes World
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How many people in the world have heard of “the Black-Scholes model”? And how many people in the world really understand how it works? Whilst these questions are not well defined, they nonetheless illustrate a point: there is enormous variation in the depth of familiarity people have with this model. The aim of this chapter is to explore the model in sufficient depth to understand its mathematical and behavioural subtleties. Such an understanding is not only very valuable in its own right, but it also paves the way for a clearer understanding of the more advanced models which we will be covering later in the book.