“Let me show you a quick way to do the Black Scholes formula in your head and impress people”, Professor Ian Martin says. Then he adds, after a brief pause: “The really few people who would be impressed by that.”
I for one can’t wait to use it as a pick up line at the next campus party. Imagine this:
Me: Pick a number!
Girl: What number?
Me: Any number between 1 and 100.
Girl: What for?
Me: You’ll see. Just pick a number.
Girl: OK. 68.
Me: Thanks. Now, if I tell you what the price of an at-the-money straddle with 1 year to expiry and implied volatility of 68% is, assuming a zero annual rate, will you give me your phone number?
Girl: If I tell you the probability, rounded to two decimal places, of that actually happening, will you disappear mysteriously and pretend we’ve never met?