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The Midas Formula (Stockmarket.Formula). - BBC Horizon Documentary
BBC's Horizon presents The Midas Formula which is mathematical formula changes the world financial markets and capitalism.
Documentary hosted by Dilly Barlow and published by BBC broadcasted as part of BBC Horizon
This is the extraordinary story of a beautiful mathematical formula that changed the world, the financial markets, and indeed capitalism itself. It could do the unthinkable - it took the risk out of playing the money-markets. To its inventors it brought the Nobel Prize for economics. To those who used it, it brought great wealth. But this glittering tale would end in tragedy.
The Black Scholes formula was invented 25 years ago, by three young mathematicians. They had been trying to solve a problem that had plagued economists for centuries - how to counter the randomness of market forces and the irrationality of human behaviour that made the markets dangerously turbulent. Whilst pondering this dilemma, they made a remarkable discovery.
Bachelier's thesis written in 1900
The search for a way to price option contracts began in earnest when the thesis of an unknown student named Louis Bachelier was unearthed in the 1950s. Working at the beginning of this century, Bachelier had set out to do something no-one had ever done before - using a series of equations he created the first complete mathematical model of the markets. He had realised that stock prices moved at random and that it was impossible to make exact predictions about them, but Bachelier said he had also found a solution - through the pricing of a financial contract called an option.