To say that the value of an option to buy IBM depends on its volatility is meaningless unless you can agree on what its volatility is. Therefore, the professors treated the volatility of a security like an inherent, unchanging trait. You have blue eyes; IBM has a volatility of X. You or I might assume that the market fluctuations of so many yesterdays are so much noise—arbitrary, not necessarily likely to recur, and best forgotten. But to Black, Scholes, and Merton—and to Long-Term—these fluctuations were invested with deep predictive significance. Each tick of the market up or down was latent
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