In the financial world, Black-Scholes has become the benchmark of how to quantify risk. This model is considered robust enough that the authors were given the 1997 Nobel Prize in Economics. Most importantly, it is used to price derivatives – both American and European put/call options. One significant limitation is that Black-Scholes cannot predict nor easily adjust to ‘non-normal variances’ in which markets swing wildly attempting to find a rational pricing. In other words, times when the shit hits the fan.

What we are witnessing is computers battling against oneanother at gigahertz speeds. In early 2000 I remarked that every third buy or sell was most likely traded against a computer. I wouldn’t be suprised if the ‘discretionary trade’ entered by a real human being nowadays accounts for perhaps 10% of the market volume, with programmatic triggers comprising the vast majority of the action. It is perhaps the only reason why the current moves we are witnessing are happing at such an accelerated pace. Those without the ability to react with sufficient speed to the changing winds are going to be whipped by this hurricane.