The Role of the Black Sholes Model in Option Pricing and Risk Management

In 2022, more than 10 billion contracts traded in the US across the exchanges. The contribution of the Black Sholes model to the growth of the derivatives industry is difficult to understate. Out of the formula pops a number, the implied volatility, that serves as a language for option market participants to communicate with. We might subtitle this podcast, The Holes in Black Sholes after a paper written by Fisher Black himself in 1989.