Black Scholes Merton formula

[kenfrost]

I watched this video that Peter posted yesterday about the Black Scholes Merton formula

https://x.com/betangel/status/1764357607987270007?s=20

It was very interesting, I then asked Copilot to show me how to apply it to trading on Betfair. It had a go, but I am none the wiser.

Has anyone tried to apply this model, or a simple variation of it, with any degree of success?

If so, without giving away your secrets, is there a simple way to try apply it (or a simple variation of it)? And if so, please could you explain it to me in English; as Copilot lost me?

Thanks.

[Euler]

When I discovered it in the early 90's a I spent a lot of time understanding it and using in options trading. When I started on Betfair I used it to price FTSE / UP down markets.

It's quite complex and has that basic assumption that you know the values to get the values out of the other side. Some of these are unknown. So, for example, when pricing FTSE up / down markets I had to make an assumption the volatility I was likely to see.

I don't think it fits sports very well as volatility is bounded by the market, but the formula isn't designed to address that directly. But some aspects of it will help you understand volatility.

A better fit for sports is a Guassian Copula.

You should also read how the same equation almost brought down the entire financial system: -

https://en.wikipedia.org/wiki/Long-Term ... Management

[kenfrost]

When I discovered it in the early 90's a I spent a lot of time understanding it and using in options trading. When I started on Betfair I used it to price FTSE / UP down markets.

It's quite complex and has that basic assumption that you know the values to get the values out of the other side. Some of these are unknown. So, for example, when pricing FTSE up / down markets I had to make an assumption the volatility I was likely to see.

I don't think it fits sports very well as volatility is bounded by the market, but the formula isn't designed to address that directly. But some aspects of it will help you understand volatility.

A better fit for sports is a Guassian Copula.

You should also read how the same equation almost brought down the entire financial system: -

https://en.wikipedia.org/wiki/Long-Term ... Management

Thanks, I will read up on that