Friday, April 22, 2011

Language Note: Optionality

Reading Ignoto on the corp fin currriculum, Bill asks: is "optionality" now a word?

Answer: I guess so.  Google offers a string of definition entries.  And language Troglodyte though I am, I would argue that we need to admit this new word because it identifies a new (or not hitherto identified) concept.

Specifically: let's stipulate that we're living in a conceptual revolution as to our understanding of options.  Black-Scholes taught us how to understand options.  Once you understand options, you start finding them everywhere.  And if you can't find them, you make them.

Hey, I didn't say this was a good thing.  Understanding the power to make options means we now live in a world where you can slice and dice the probability spectrum into a near-infinite number of pieces.  Which may not be a good thing. But Ebola is not a good thing, and yet we let it have a name.  

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