As a spin-off from Daniel’s discussion of whether the DEM04 contract is overvalued on the Iowa Electronic Markets, here’s a version of the trend surface he calculated that shows differences between the Black-Scholes valuation and the observed market price over time (you can look at it in smaller PNG format or better-quality PDF). I created it using R, the free[1] statistics package because I didn’t like Excel’s default effort and I hadn’t had a reason to use R’s wireframe() function before. It’s still not up to the standards of the Bill Clevelands or Ed Tuftes of this world, but it was the best I could manage on short notice. Thanks to Daniel for sending me the data, and remember that whereas I am happy to field questions about graph colors and chart widgets, technical queries about option valuation, Black-Scholes volatility fluctuations and arbitrage should still be directed to him.

fn1. As in “free to make your own mistakes.”