What Stock Option Pricing Models Tell You about Courting Controversy

“There’s no such thing as bad publicity” was surely coined by an otherwise bad publicist. Of course there’s such a thing as bad publicity, if you’re already famous.

If you’re not famous, there’s a tradeoff: at some point, it’s better to piss off most of your audience and impress a few people, rather than having no audience at all.

The Black-Scholes model provides a helpful way to look at this. The Black-Scholes formula allows you to price a stock option knowing only a few data points—the current price of the stock, the strike price and maturity of the option, the risk-free interest rate, and the stock’s volatility. Read the rest of this entry »