B-S endures, but is generally patched with insights like these.
I think I can see what you mean, and in fact I partially agree, so I’ll try to restate the argument. Correct me if you think I got it wrong.
In my experience it’s true that B-S is still used for quick and dirty bulk calculations or by organizations that don’t have the means to implement more complex models. But the model’s shortcomings are very well understood by the industry, and risk managers absolutely don’t rely on this model when e.g. calculating the capital requirement for Basel or Solvency purposes. If they did, the regulators will utterly demolish their internal risk model.
There is still a lot of work to be done, and there is what you call model uncertainty at least when dealing with short time scales, but (fortunately) there’s been a lot of progress since B-S.
B-S endures, but is generally patched with insights like these.
I think I can see what you mean, and in fact I partially agree, so I’ll try to restate the argument. Correct me if you think I got it wrong. In my experience it’s true that B-S is still used for quick and dirty bulk calculations or by organizations that don’t have the means to implement more complex models. But the model’s shortcomings are very well understood by the industry, and risk managers absolutely don’t rely on this model when e.g. calculating the capital requirement for Basel or Solvency purposes. If they did, the regulators will utterly demolish their internal risk model.
There is still a lot of work to be done, and there is what you call model uncertainty at least when dealing with short time scales, but (fortunately) there’s been a lot of progress since B-S.