The Midas Formula: Trillion Dollar Bet

Published on 7th February 2017 by

A 1999 BBC documentary which tells the story behind possibly the greatest options pricing formula ever created in finance, the Black-Scholes-Merton model which won the creators – three economists – a Nobel Prize. The formula had a far reaching effect on the financial markets.

The three creators joined forces with John Meriwether, a bond trader at Salomon Brothers, and with 13 other partners they launched a hedge fund called Long Term Capital Management which promised investors that they would use their mathematical formula to generate huge returns with little risk. It initially delivered on its promise but in 1998 the funds losses were so large that it had to be bailed out in order to prevent major damage to global financial markets.

The lesson ultimately learnt was that there are world events which mathematical models alone cannot foresee. The film includes interviews with various traders working in the industry as well as two of the algorithms creators.

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