tag:blogger.com,1999:blog-2182962435875556601.post6442094745089404432..comments2020-01-20T04:20:02.866-05:00Comments on FSK's Guide to Reality: The Black-Scholes Formula is Wrong! - Part 6/12 - The ContradictionFSKhttp://www.blogger.com/profile/11903396202330950362noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-2182962435875556601.post-25049094629142942022009-05-30T15:23:48.501-04:002009-05-30T15:23:48.501-04:00there is no contradiction. axiom one is not that t...there is no contradiction. axiom one is not that the expected return equals the risk free rate but that the expected return UNDER RISK NEUTRAL probabilities equals the risk free rate. u should have thought about that for a second before blasting out that nonsenseAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2182962435875556601.post-51285911903532547762008-03-28T18:50:00.000-04:002008-03-28T18:50:00.000-04:00The error with this thinking is assuming that the ...The error with this thinking is assuming that the risk profiles are identical for the risk-free interest rate and the stock market. Axiom #1 must be assumed, as the author points out, for purposes of arbitrage. Axiom #7 is the correct assumption, empirically speaking over a long enough period of time, but it is not a law. The actual stock market return over any given period of time may be far less than the interest rate, and indeed may be negative. Higher risk accompanies higher rates of return.<BR/><BR/>From other assumptions I've seen in this series, the Author seems to have a serious blind spot when it comes to risk profile.seanhttp://home.earthlink.net/~seanenoreply@blogger.com