The rise of the Black-Scholes model

[shamebear]

The Black-Scholes model for option pricing was presented in 1973 and has been widely applied in economics, to say the least. Today, it's easy to find competing models published in fields from economics to physics but Black-Scholes appear, to an outsider atleast, to be the standard

Comments

[nsingman]

The shortcomings of Black-Scholes are well known, but it is a very nice, simple, closed-form approximation that's easy to program and implement. Binomial pricing models are considerably more cumbersome, programmatically. I believe that those facts, plus the usual inertia and nostalgia, account for the model's persistence as a benchmark.

[naxos]

One point in the favour of Black-Scholes is that it has only one model parameter, (implied) volatility, which traders find it pretty easy to conceptualise (and trade).

are you sure?

[alphaquantum]

I would not be so sure that WS uses only BS.
BS is just to give a flavor of the prices, but actual trading within big houses are done by very complicated methods/models. At least every quant will agree that the market is not complete ;)