Bespoke BullSh*t

Have Recent Crises Blown a Hole Through Modern Financial Theory?

While I agree with the general idea of this article, I have to disagree with a couple of points that I find superficial.

1. The "discontionuesness" (word of the year) in market prices and lack of liquidity are not unique characteristics of today's markets. Actually market practitioners and academia have touched on these subjects before (Mandelbrot for one, Schiller another). The only thing that changes are the intricate details of what causes lack of liquidity and jumps in market prices.

2. Black-Scholes formula of pricing options is still, unfortunately, the basis for most derivative pricing. Unless this changes, we'll keep seeing these types of blow ups from time to time, from LTMC to Bear Stearns. The markets are fractals and do not feet the "Bell Curve" (the basic assumption of Black Scholes) the sooner we learn this the better for us.