Trillion Dollar Bet

Aug 29, 2023 | Economics, Videos

The story of the Black-Scholes option pricing model is one of the greatest success stories in finance. Developed by scholars Fischer Black and Myron Scholes, this revolutionary formula won them a Nobel Prize in 1997. The model allows traders to accurately price options, enabling them to make sound investment decisions.

In 1994, Black and Scholes founded Long Term Capital Management (LTCM), one of the most successful hedge funds of its time. By 1998, LTCM had achieved an estimated return on capital of over 40%, far surpassing any other fund. The excellence and efficiency of their system was due to the sophisticated use of derivatives such as options – all made possible by their groundbreaking formula.

Unfortunately, LTCM’s loss in the Russian debt crisis brought an end to this success story. However, this fascinating tale is now captured in an award-winning documentary entitled ‘Black-Scholes: The Options Pricing Model that Changed Finance’. This film takes viewers through the incredible rise and fall of LTCM, highlighting how the formula revolutionized financial markets forever. Through interviews with some of the major players involved in this saga, as well as archive footage from Wall Street trading floors and exclusive access to both Black and Scholes’ homes, it offers a unique insight into one of modern finance’s most remarkable stories.

For those interested in finance or economics, or simply curious about how two academics changed a fundamental industry forever, ‘Black-Scholes: The Options Pricing Model that Changed Finance’ is a must watch – offering not only an entertaining story but also a valuable learning experience about financial theory applied in practice.

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David B