Since then the assumptions present in Black-Scholes and similar pricing models have caused considerable chaos elsewhere in finance. One of those things that perhaps it would have been better that they had not invented. Professionally it was great for the inventors though: they won the Nobel Prize at the time.
I am not sure it's better if that was not invented - the question of option pricing doesn't go away, it's a fundamental need for real businesses producing commodities that need to hedge real risk around the weather, or selling into cyclical industries etc.
LTCM (& it's failure) has as much to do with getting so big as to present a systemic risk to the entire financial sector, and over-leverage. No matter what formula they use to price their options, those two factors make for a dangerous combination. There is a perverse incentive to become "too big to fail", because if you truly reach that, the gains stay private whereas the losses are inevitably socialized to prevent taking down the whole system.
For about a decade, as I flew a lot, I met a lot of mid level executives at all sorts of companies. I routinely asked them to describe if their company used any derivative products, and which, and why. I was astounded to learn pretty much everyone did, from pricing plastics, to dealing with international trade variations, to getting financing for projects.
There is a reason the derivatives market has a notional value of ~1 quadrillion, and it's not because the people using them are all idiots. Quite the contrary, this value is there because it adds value across every sector of the world economy, and business the world over voluntarily use these products because they deem it in their best interests, which almost universally is because it lowers costs and/or volatility.
This [1] claimed 94% of the world's biggest companies used derivatives, and this was in 2009. I'd expect more and more of them to use derivatives over time as more products get priced.
All this followed from the ideas in Black-Scholes, for pricing certain contracts, ideas which were later developed to handle all sorts of products. Before this, people did a lot of the pricing mostly by guesswork, making it much harder to design and use all these volatility reducing products.
[1] https://derivsource.com/2009/04/23/over-94-of-the-worlds-lar...
I think you're off base on this. The ensuing financial mishaps just made the model better, but the creation of Black-Scholes brought us from 0% to 90% of the way to where we are today, where modern derivatives insure product price swings for almost everything across the world. Since then, a patch-work of model changes have brought us closer to perfect pricing through the realization that many markets have higher kurtosis.