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Black–Scholes 50 Years Later: Has the Outperformance of Passive Option Strategies Finally Faded?

Author

Listed:
  • Andrew Kumiega

    (Stuart School of Business, Illinois Institute of Technology, Chicago, IL 60616, USA)

  • Greg Sterijevski

    (CommodityVol.com, West Palm Beach, FL 33412, USA)

  • Eric Wills

    (Park River Advisors, Shorewood, IL 60404, USA)

Abstract

Slightly over fifty years ago, the Black–Scholes option pricing model revolutionized investing by enabling a shift from linear to non-linear payoff structures. Myron Scholes later published two papers documenting the performance of passive option strategies that outperformed the underlying index on a risk–return basis. The options market has evolved considerably over the last fifty years from an open outcry trading structure with options being single-listed to a high-frequency computer-based market. This paper re-evaluates the trilogy of foundational studies to determine whether passive-option-enhanced portfolios still produce superior performance in the current high-frequency options market environment.

Suggested Citation

  • Andrew Kumiega & Greg Sterijevski & Eric Wills, 2024. "Black–Scholes 50 Years Later: Has the Outperformance of Passive Option Strategies Finally Faded?," IJFS, MDPI, vol. 12(4), pages 1-17, November.
    • Handle: RePEc:gam:jijfss:v:12:y:2024:i:4:p:114-:d:1525125
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    References listed on IDEAS

    as
    1. Merton, Robert C & Scholes, Myron S & Gladstein, Mathew L, 1978. "The Returns and Risk of Alternative Call Option Portfolio Investment Strategies," The Journal of Business, University of Chicago Press, vol. 51(2), pages 183-242, April.
    2. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," The Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-343.
    3. Zaevski, Tsvetelin S., 2020. "Discounted perpetual game call options," Chaos, Solitons & Fractals, Elsevier, vol. 131(C).
    4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    5. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
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