Template-Type: ReDIF-Paper 1.0
Author-Name: Doriana Ruffino
Author-X-Name-First: Doriana 
Author-X-Name-Last: Ruffino
Author-Email: rdoriana@bu.edu
Author-Workplace-Name: Boston University, Department of Economics

Author-Name: Jonathan Treussard	
Author-X-Name-First: Jonathan 
Author-X-Name-Last:   Treussard
Author-Email: jtreussa@bu.edu
Author-Workplace-Name: Boston University, Department of Economics

Title:Derman and Taleb's The Illusions of Dynamic Replication: A Comment


Abstract:While as a matter of pure chance and mathematical manipulations, the Black-
Scholes formula could have been accidentally obtained much earlier by making use of
put-call parity, a simple thought experiment demonstrates the inconclusiveness of any
such derivation as regards the validity of the resulting pricing equation. In particular,
the use of a non-stochastic discount rate common to both the call and the put op-
tions is inconsistent with modern equilibrium capital asset pricing theory. Additional
observations are made.

Length: 05 pages
Creation-Date: 2006-03
Revision-Date: 
Publication-Status:
File-URL: http://www.bu.edu/econ/workingpapers/papers/RuffinoTreussardDT.pdf
File-Format: Application/pdf
File-Function: 
Number: WP2006-019
Classification-JEL:
Keywords:
Handle: RePEc:bos:wpaper:WP2006-019