Brooklyn Quant Experience Lecture Series: David Shimko

Lecture / Panel
For NYU Community

The Department of Finance and Risk Engineering welcomes David Shimko, Industry Full Professor, NYU Tandon School of Engineering, FRE to the BQE Lecture Series.


Arbitrage-Based Derivative Pricing without Stochastic Calculus


In the famous Black-Scholes-Merton model, continuous arbitrage in a frictionless environment leads to a well-known arbitrage-based pricing relationship between a single European call option and an underlying stock. In our discrete-time model, we use static arbitrage relationships across all options to find the same result.  Our analysis also lays bare the impact of the powerful self-financing (SF) condition. While BSM requires the SF condition, we do not, leading to a stronger result.  Additionally, we find that derivatives can be valued in the static CAPM provided a no-static-arbitrage constraint is included in the assumption set, resolving a 40-year-old dilemma. Finally, we show that option pricing could have been rigorously developed before the CAPM was created, using high school mathematics.


Professor Shimko joined FRE in 2017 following a 30+ year career in investment banking and consulting.  After beginning his career as an Assistant Professor at USC, he left to become a Vice President at JPMorgan, and a Principal at Bankers Trust.  He co-founded Risk Capital, a successful independent risk management consulting firm, which was sold in 2006.  Since that time, he has combined private consulting with entrepreneurial ventures in asset management and credit.  His current research focuses on advanced valuation techniques, such as the application of derivative pricing technology to corporate assets, liabilities, and decisions.