Add training workflow, datasets, and runbook
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The Black-Scholes-Merton Model • 47
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The fact that the theoretical basis of option pricing is provably wrong
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is very good news for intelligent investors. The essence of intelligent option
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investing involves comparing the mechanically determined and unreason-
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able range of stock price predictions made by the BSM with an intelligent
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and rational valuation range made by a human investor. Because the BSM
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is using such ridiculous assumptions, it implies that intelligent, rational
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investors will have a big investing advantage. Indeed, I believe that they do.
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Now that we have seen how the BSM forecasts future price ranges for
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stocks and why the predictions made by the BSM are usually wrong, let us
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now turn to an explanation of how the stock price predictions made by the
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BSM tie into the option prices we see on an option exchange such as the
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Chicago Board Option Exchange (CBOE).
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