Has Genius Faded?
Stuart School of Business research presentation by: Assistant Professor of Analytics Andrew Kumiega and Eric Willis
Has Genius Faded?
- Assistant Professor of Analytics Andrew Kumiega
- Eric Willis, CFA, Park River Advisors
Abstract:
Fifty years ago, a simple mathematical equation changed the world of investing. The equation that changed trading was the Black-Scholes (Merton) option pricing model. The Black-Scholes equation allowed investors to move from a linear payoff structure to a complex nonlinear payoff structure. Most academic papers celebrating this anniversary will likely focus on the mathematical equations that evolved from Black-Scholes, while ignoring its impact on portfolio managers and investors.
Interestingly, after the creation of Black-Scholes, Myron Sholes produced two papers documenting that simple option strategies outperformed a traditional portfolio of 60 percent bonds and 40 percent stocks. A key question is whether these simple option strategies still outperform a traditional portfolio almost 50 years later and after many changes in the options market.
All Illinois Tech faculty, students, and staff are invited to attend.
The Friday Research Presentations series showcases ongoing academic research projects conducted by Stuart School of Business faculty and students, as well as guest presentations by Illinois Tech colleagues, business professionals, and faculty from other leading business schools.