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An Overview of the Black-Scholes-Merton Model After the 2008 Credit Crisis

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Econometrics of Risk

Part of the book series: Studies in Computational Intelligence ((SCI,volume 583))

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Abstract

The 2008 credit crisis exposed the over-simplified assumptions of the Black-Scholes-Merton (BSM) model. This paper provides an overview of some of the adjustments forced on the BSM model by the 2008 credit crisis to maintain the relevance of the model. The inclusion of credit value adjustment (CVA), debit value adjustment (DVA), funding value adjustment (FVA) and the posting of collateral in the BSM model are discussed.

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Acknowledgments

The authors would like to thank Carlous Reinecke for the helpful discussions. The second named author was supported by the NRF (Grant Number 87502).

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Authors and Affiliations

  1. Rand Merchant Bank, 1 Merchant Place, Cnr Fredman Drive and Rivonia Road, 2196, Sandton, South Africa

    Chadd B. Hunzinger

  2. Research Associate, Faculty of Economics and Financial Sciences, Department of Finance and Investment Management, University of Johannesburg, P.O. Box 524, 2006, Aucklandpark, South Africa

    Chadd B. Hunzinger

  3. Department of Finance and Investment Management, University of Johannesburg, P.O. Box 524, 2006, Aucklandpark, South Africa

    Coenraad C. A. Labuschagne

Authors
  1. Chadd B. Hunzinger
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  2. Coenraad C. A. Labuschagne
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Correspondence to Coenraad C. A. Labuschagne .

Editor information

Editors and Affiliations

  1. Japan Advanced Institute of Science and Technology, Nomi, Japan

    Van-Nam Huynh

  2. Department of Computer Science, University of Texas at El Paso, El Paso, Texas, USA

    Vladik Kreinovich

  3. Faculty of Economics, Chiang Mai University, Chiang Mai, Thailand

    Songsak Sriboonchitta

  4. Faculty of Economics, Chiang Mai University, Chiang Mai, Thailand

    Komsan Suriya

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Hunzinger, C.B., Labuschagne, C.C.A. (2015). An Overview of the Black-Scholes-Merton Model After the 2008 Credit Crisis. In: Huynh, VN., Kreinovich, V., Sriboonchitta, S., Suriya, K. (eds) Econometrics of Risk. Studies in Computational Intelligence, vol 583. Springer, Cham. https://doi.org/10.1007/978-3-319-13449-9_3

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  • DOI: https://doi.org/10.1007/978-3-319-13449-9_3

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  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-13448-2

  • Online ISBN: 978-3-319-13449-9

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