QUANT FINANCE 1 - Why We Never Use the Black Scholes Equation, 1

The first part explaining the Bachelier equation and how options were priced traditionally.

[@emit_etinif]

I’ve studied probability theory and option pricing (and naturally everything that’s prerequisite to those topics) and I’m well versed in the tools and concepts Taleb is presenting. Still I find him difficult to follow, and I seem to be the only one in the comments who’ll admit that. I do like his matter-of-fact, no bs approach and he puts a smile to my face every time he calls out some generally accepted concepts to be wrong. Taleb, if you’re reading this, thank you for taking the time to putting out this content. A constructive point of criticism: I believe viewers would benefit more from your videos if you presented in a clearer and pedagogical manner. Cheers!

[@slon911]

Same, agreed

[@therealrafaeleufrasio]

I agree, Jonas! I am also well versed in the area and would love to see Taleb presenting this in a more pedagogical fashion.

[@sueton1797]

Hi Mr. Dyreby, Do you have any suggestions in terms of books of option pricing theory ? I already know the ones from Shreve, but I am looking for another one.

[@ClimateKiller]

Agreed 100%. No need to dumb it down, but it’s pretty hard to follow.

[@SmellOfFreshCutLawn]

For what it's worth, it's also the audio sometimes - at spots here and there, it's hard making out the words (not sure if just me?). Nonetheless, I always enjoy these videos and do hope to see more! Edit: thought I knew what the audio issue was, then discovered I didn't :/

[@Rothbardo]

Professor, if you continue this quant finance series, it will be my favorite thing in my KZbin subscription feed. Thank you, sir.

[@TFax3d]

Love these new longer lectures. Thank you.

[@Senecamarcus]

Thank you for all that you do!

[@Esyr33]

These videos are a real treat for anyone interested in finance. Thanks maestro!

[@finnthormeier]

I love prof Taleb's casual use of "very simply" - not sure if it makes me feel encouraged or discouraged 😂

[@SpindicateAudio]

A graduate degree in finance from a master for FREE. Grateful to you.

[@albertotufaile]

What a neat explanation for option pricing!

[@hcubill]

Thanks Maestro for your guidance

[@haroldflashman4687]

It is such a pleasure to watch these lectures.

[@realthoprivate]

Thanks a lot, great lecture. PS: You are incredibly good at drawing normal distributions. :)

[@diegomunoz5139]

I am curious about this as well!

[@BG-kj5wb]

hes just trolling us with this video quality now

[@XYKUN_]

Considering he doesn't like too much exposure, it may be a way to filter viewers haha

[@sueton1797]

@@XYKUN_ "So my wish is for people in general to remain fools of randomness - so I can trade against them" in Fooled by Randomness from N.N Taleb

[@Sebastian-xf8je]

A true Master Class

[@kenji_ignacio]

I came across The Misbehavior of Markets by Mandlebrot after reading your books. It's been an interesting process of learning!

[@silentstorm718]

Great book, Im staring at the copy on my bookshelf rn!

[@michael14561]

Hi Nassim, One question that’s always puzzled me on this point why your book Dynamic Hedging goes into so much detail on the Greeks of BSM if traders do not use this. I always thought the justification was that the flaws with BSM are known and traders are able to fudge where needed. This video indicates that BSM isn’t used at all which seems inconsistent to me. Can you point out where I am mistaken please? Loving the lecture series!

[@nunoalexandre6408]

Love it!!!!!!!!

[@bobklapetzky4678]

Reminds me of Rama Conte' work. Markets as Adaptive EcoSystems. Traders will gravitate towards what WORKS, vs Generally accepted academic theories.

[@midoalpha9667]

Thank you sir

[@vicenteperez1744]

Great insight, I think I have to get deeper into the subject in order to understand 100% what you're teaching, is there any book you would recommend to learn the basis stochastic analysis for undergraduates? Thank you Mr Taleb, I appreciate the time you take making this videos.

[@bcw9380]

As an introduction I can greatly recommend: “An Introduction to the Numerical Simulation of Stochastic Differential Equations”. With its emphasise on simulation you will get an intuitive understanding of these complex mathematical objects. I can give you the hint to program along but in a different programming language. If you are more in a theoretical side and are a math or physics major you should take a look at: “Introduction To Stochastic Calculus With Applications”. I learn so much from this, but it is very technical and I would recommend it only to an advanced undergraduate or graduate student. Have fun :)

[@vicenteperez1744]

@@bcw9380 thank you!!! I really appreciate it

[@kevinkasimov651]

Learned some things from this

[@quantaraum]

need more of quant finance... can you look at cross hedge functions

[@marcogelsomini7655]

why the positive skew adjustment for the normal distribution? Thx for the video!

[@imu6085]

I have read all major books frm Taleb. (no need to say i am a fan) Now seeing him write math with chalk on a blakboard convinces me that he is also a good professor 😂

[@mikiallen7733]

hi nassim , I hope you are doing okay , would you kindly share with us what did you notice on the screen the day before 2008 market crash started and which alarmed you great deal I mean which greek(s) ? and which decisions did you take on that day to protect your holdings ?

[@akjin]

The paper mentioned in kzbin.info/www/bejne/i6CqnYiQhbOiq68 is Why we have never used the Black-Scholes-Merton option pricing formula, EG Haug, NN Taleb - Social Science Research Network Working Paper, 2008

[@prabinshiwakoti4295]

Professor or anyone, can you determine the price of an option in a panic sitaution? Lets say, today is Thursday, MSFT reported pre market. Yesterday's close was 250. Pre market was 230 (negative earnings suprise)..and when the market opened price dropped further to 220- within the first 10 minutes. This kind of sutation happens frequently generally at least once a day. How can someone define call options price in that situation for 225 strike price expring on Frday, the next day. At 220, how much should i pay for that 225 call as I will have less than 31 hours for the options to expire.

[@RichardKinch]

So where does this recant leave the revered VIX (formulated from Black-Scholes)? I remember _We Don't Quite Know What We are Talking About When We Talk About Volatility_ fondly.

[@quantaraum]

hello sir could you do a video about delta neutrality and deviations

[@purfuitofhappinefs5862]

I use heuristics for options.

[@sitrakaforler8696]

hahaha really great video ! (why didn't you published it when i was studying it T^T )

[@pewtercity6038]

Professor, on a related note. In one of your books you once wrote that options traders in the Pits weren't using Black Scholes to price options and were instead pricing options "off-sheets" off the butterfly, could you clarify what that meant? I've always been curious what that meant and/or if you could give an example? A model free way of pricing options seems pretty interesting.

[@nntalebproba]

Part 2 will explain!

[@riankashyap1996]

The ATM straddle as % of spot quotes the spot IV. The smile. Butterflies quote IV diff accross ATM and Short wing strike of the fly. The skew. A risk reversal quote IV diff across put and call strike of same moneyness. The Parity Using these three relationship you can price any otm strikes, be it a call or put. Simple.

[@pewtercity6038]

@@nntalebproba Awesome, really looking forward to it!

[@seren1ty755]

@@riankashyap1996 Could you go into more detail on how to price OTM strikes with this information?

[@okemberg]

@@nntalebproba i don't find part 2

[@phily8020]

Can you start doing some risk assesments on nuclear war ?

[@finance315]

Prof, what do you think about doing Financial Engineering?

[@alovyachowdhury9143]

more quant finance pls

[@alovyachowdhury9143]

@Spoiled Hu dikkat hai???? using mathematical models to make money

[@alovyachowdhury9143]

@Spoiled Hu dikkat hai???? Yes but difficult

[@rccr5183]

You are a notorious critic of micro and macro economics but I would love to hear eactly what in these fields you think is bullshit. From what I understand it is the DSGE models in macro, but I¨ve never heard any precise critique of micro.

[@adamfattal9602]

Great video! P.S: Are you lebanese?

[@knightkingsenpai]

No he's lesbian

[@williamnichols6253]

Can someone please help me to know what math book to read so that I understand those letters and squiggles? I’m not bad at abstract concepts and math, I just didn’t take a lot of it in high school and college once they stopped forcing me. Do I need a Stat 101 book? 103? Integral Calculus? 101 or 201? I just need a little direction here.

[@petardjurkovic1015]

Little bit measure theory, probability, Lebeasgue integral

[@valdomero738]

Real analysis or analysis in general, you are innumerate and illiterate if you didn't take those courses tbh.

[@qx-jd9mh]

All the Greek notation comes from stochastic differential equations. Mathematical statistics, real analysis, and partial differential equations will get you prepared for that.

[@williamnichols6253]

@@valdomero738 Thanks. So I find a textbook that says "Real Analysis"?

[@williamnichols6253]

@@qx-jd9mh Thanks, super helpful!

[@3adbelt765]

How did they trade options in the 1900 without robinhood (joke)

[@CYQ776]

What math do I need to take to understand this? I have taken Calc 1

[@firstave33]

probability theory, stochastic processes/calculus

[@Lilbowwow-pu5rl]

You need to know Partial Differential Equations and the Heat Wave

[@siamgangte2826]

Try and understand intuitively with some related real life examples what the equation is trying to tell you and work back with the specific maths concepts or rather tools that are used to express the reality

[@edutioyo4477]

Mr. Nassim, when are you getting a better camera?

[@jensonphan]

;)

[@jensonphan]

Should I even be watching this at 17? I am currently taking Calculus, but can't even understand what these other letters and numbers mean

[@saadmirza2727]

No

[@DumbAmerican-gu2mz]

Don’t be discouraged. They’re just variables

[@user-de4yp7fs2p]

Don't understand anything but I really want to understand...

[@Potencyfunction]

There is a fucking math formula. You take your numbers and put them in the formula equation and with the help of "CAS in Word" or Excel Sheet you can get the response of your normal calculation regarding price option in fucking math formula.

[@marciokatayama]

If the Bachelier formula gives different result, it creates an arbitrage to make money. If there is an arbittrage, where is the error of Black and Scholes formula? The only difference he is telling is considering the lognormal returns for calculating volatility?

[@matta5749]

the error is in the egregious mispricing during rare events. you're making the mistake of assuming that a better pricing formula should give a better price all the time or most of the time. that is not true. it only needs to perform better on average, which is more about defending against extreme price changes of the underlying asset rather than trying to maximize the proportion of the time you make money.

[@user-in9nt3lu2k]

Manic monday월요병 그렇지

[@KarimTraderFutures]

Bonjour Monsieur Taleb, la vidéo a été tronquée....

[@elliotjones3098]

this guy is crazy smart, it's obvious, and I even have one of his books...but the way he explains things in this video, it's the worst

[@hubertbilski1343]

What the fuck I don’t understand none of this 😭😭

[@patriciogalvan7595]

Horrible form of explaining