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Comment on "Taylor, Black and Scholes"
Year Of Publication: 1996
Month Of Publication: September
Download Count: 969
View Count: 7484
Comment Num: 0
Language: EN
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Who Can Read: Free
Date: 9-4-2002
Publisher: Administrator
Summary
Estrella argues that Taylor series epresentations of the Black Scholes formula (in which the formula is expanded in one particular argument - e.g., "delta-gamma") may not converge to the exact Black Scholes price. He concludes that these approximations "should not be used in the context of stress testing", and, even for small moves, it may be "risky to use Taylor approximations." While the mathematics of Estrella's result appears to be correct, his conclusions are too strong for two reasons.
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Schachter, Barry Sign in to follow this author
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