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List:       r-sig-finance
Subject:    [R-SIG-Finance] How good is Black-Scholes vs actual option prices
From:       Peter Mennie <psmennie () yahoo ! co ! uk>
Date:       2009-11-23 17:30:24
Message-ID: 929455.48091.qm () web25505 ! mail ! ukl ! yahoo ! com
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MSCI published this report recently: \
http://www.mscibarra.com/resources/pdfs/research/Portfolio_BCP_Nov_2009.pdf which \
basically looks at various methods of mitigating extreme event risk for equity \
portfolios.

One method they test is to buy options when their indicators suggest downside risk.  \
On pg 13 they mention they they use Black-Scholes to estimate the price of these \
options, using the VIX index as volatility and US 3m T-bills for the risk free rate

I was wondering if anyone had any experience of how accurate this assumption is \
likely to be in practice, and whether in practice the price would be likely to be \
greater or less than this estimate

Peter Mennie



      
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