Epstein Secrets

ith advertising executive. Donny Deutsch. investor Nelson Peitz. publishing mogul and owner at The Daily News, Mortimer Zuckerman and film producer Harvey Weinstein. They were ultimately out bid by longtime wall street investor Bruce Wasserstein for SSS million. In 2004, Epstein and Mortimer Zuckerman, committ

ews, Mortimer Zuckerman and film producer Harvey Weinstein. They were ultimately out bid by longtime wall s

Daily News, Mortimer Zuckerman and film producer Harvey Weinstein. They were ultimately out bid by longt

hy individuals. Epstein began his financial career in 1976 as an options trader at Bear Steams. He specialized in mathematical models such as the Black-Scholes option-pricing model and later worked in the special products division, advising high not worth clients on tax strategies. In 1980. Epstein became

have the advantage." Claude Shannon [Tribus & Mclrvine 1971]. I find the last quote very reassuring. In my own opinion, though less well known than Einstein, Von Neumann ranked close to Einstein in terms of genius. Like Einstein, he didn't merely bring in a single profound new idea; but seemed to change

st is in that of finance. The earliest work on random walks was that done by the mathematician Bachelier on stock prices. Bachelier's work predates Einstein's own random walk model of Brownian motion. For half a century Bachelier's work was largely forgotten. The use of random walks in finance was rekin

andom walk process has been removed from it's many body background, and individual prices are treated as moving randomly isolated by themselves. But Black-Scholes is simply the diffusion equation, and things don't diffuse with random jumps in a vacuum. The random movements of dust particles undergoing Brownia

that this chaotic motion is noticeable in objects as large as planets. This is not simply the chaos of quantum effects or the stochasticity found in Black-Scholes. This is 'deterministic chaos' or usually 'chaos theory'. The chaos is present even in problems that can be described in exact mathematics and are

nd demand. In Handbook of Financial Markets: Dynamics and Evolution, ed. T Hens, KR Schenkhoppe, pp. 57-130. Amsterdam: Elsevier Bray A, Graham 3, Harvey C, Michaely R, 2005. Payout policy in the 21st century. Journal of Financial Economics 77,483-527. van den Berg H, 2010. Mathematical Models of Biolo

d 'common sense' and simply worked out the mathematical consequences of this fact. Thus was relativity born. Economists seem to prefer the route of Einstein's peers, forever producing more complex theories to substantiate the existence of a hypothetical aether. Science can not be built simply on common

The research on liquidity suggests two implications for finance that are both quite profound, the first area relates to the pricing models based on Black-Scholes, the second to the pricing of shares under the CAPM. Almost all modern option pricing theory is based on the Black-Scholes model, or other closely-

sible), then it may be that measurement of liquidity might be able to give good timely measures for current volatility that can be used directly in Black-Scholes models; rather than the current practice of imputing from historical volatility. A second significant area of interest for the application of liqui

ke this naïve approach as it stands and follow the consequences through the model. With regard to management behaviour, research from Bray, Graham, Harvey and Michaely [Bray et al 2005] support the contention that maintenance of a constant dividend stream is an important priority for managers of corpo

ists working in finance have not only accepted this, but they have built more and more baroque models on these flimsy foundations. The trouble with Black-Scholes is that it works very well, except when it doesn't. This basic flaw has been pointed out from Mandlebrot onwards, to date with no notice taken. Thi