I really wouldn't take an article seriously if it partially blames the '87 stock market crash on Black-Scholes (basic model for pricing European options). That makes literally zero sense.
It makes literally zero sense unless you know something about that crash and the financial markets of the time. In which case it makes perfect sense.
The Black-Scholes model provides a recipe for creating synthetic options that will (under the assumption of known volatility) act just like real ones. Which is convenient because you can create synthetic versions of options that people want to have but which are not traded. Leading up to the '87 market crash, lots and lots of these synthetic options were created. Then came the crash.
People can debate endlessly about why the crash started. But once it did, there is no question that trading algorithms attempted to close out trades that were necessary to maintain synthetic options. These large trades attempted to execute in markets that had seized up, and made the market much, much worse. The result contributed greatly to the crash, and caused the synthetic options to fail to work as promised. (Besides, the Black-Scholes algorithm guarantees that it acts like an option through a certain amount of variation in the stock price, and not for a particular time period. The volatility of the crash demonstrated the importance of this discrepancy.)
Now do you see how the Black-Scholes model contributed to that crash?
automatic trading based on Black-Scholes acerbated the crash != the Black Scholes model contributed to the crash
Unrelatedly, is there anything wrong with, say, a mortgage-backed security accurately priced according to a particular model, so long as the limitations of the particular model's assumptions are properly understood? This applies to any model in economics or finance. All are obviously just simplifications of reality.
The technical assumptions of a mathematical model should not be blamed for the actions of ignorant or reckless investors.
You don't get a very big explosion with just a fuse, and no combustible material. Without the combustible material, the fuse just fizzles out, no great harm done.
It's a separate thing to blame a bad idea, versus blaming the people who thought the bad idea was true. Language is ambiguous; trying to weasel one's way out of "this idea is bad" by saying "the people who think this idea, they're bad; it's not the idea itself", is IMO trying to rely on the imprecision of casual language to refute an argument only for a single formulation, but not in spirit. Ideas have no life of their own outside people's heads. The same argument can be applied to say that there is no such thing as a bad idea.
The problem with trying to use Black-Scholes only within its limitations is that it would never, ever get used in any real market. Its fundamental assumptions just don't match the way price movements actually play out.
