Sunday, February 19, 2012

The Mathematical Equation That Caused the Banks to Crash

"The mathematical equation that caused the banks to crash".

I found the article informative, but the title a bit misleading. As the article notes, the problem was not the Black-Scholes equation per se, but rather how it was misused when inappropriate to circumstances. (Something true for many tools, such as guns or computers.)

Update: Reader B.E. pointed me towards this article arguing that, "Black-Scholes Didn't Cause the Financial Crash".

Update: Reader C.S. pointed me towards companion information about the Nova story, "Trillion Dollar Bet". One could reasonably infer a position somewhere between the two sources cited above.