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Saturday, May 16, 2009

I Couldn't Make This Up

From th NYT interview with Nobel Prize winner Myron Scholes (My bolds)

Q After leaving academia, you helped found Long-Term Capital Management, a hedge fund that lost $4 billion in four months and became a symbol of ’90s-style financial failure.
A.Obviously, you prefer not to have lost money for investors.

A. What are you doing these days?
I split my time between giving talks around the world and running a hedge fund, Platinum Grove Asset Management

Deborah Solomon the interviewr understates the import of LTCM's collapse. It was deemed of such potentially disastrous consequences to the world financial system, that the Federal Reserve engineered a plan to prevent a collapse of the markets.

Suffice it to say I am with Nassem Taleeb (author of Fooled By Randomness and The Black Swan) on all his critiques of Scholes Those more academically inclined might be interested in the following:

Why We Have Never Used the Black-Scholes-Merton Option Pricing Formula (fifth version)
Espen Gaarder Haug

Nassim Nicholas Taleb
NYU-Poly Institute

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