One big happy family

One of the great challenges of the past two decades has been to keep up to date with the rapid evolution of option pricing models. In an update of an article first published in 1991, Charles Smithson tracks the ongoing development of these models

When I worked at one of the dealer banks in the early 1990s, I was assigned the task of reviewing the various option pricing models that were in use there and reporting on the appropriateness of the models to senior management. The reporting turned out to be the hard part: since 'trust me' was not going to do it, I needed to find a way to show a non-technical audience how I drew my conclusions