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Diffusion Of Responsibility

Discussion in 'Shares' started by Tropo, 26th Apr, 2012.

  1. Tropo

    Tropo Well-Known Member

    17th Aug, 2005

    Over the weekend I revisited this article from The mathematical equation that caused the banks to crash | Science | The Observer

    It was the holy grail of investors.
    The Black-Scholes equation (Black) brainchild of economists Fischer Black and Myron Scholes, provided a rational way to price a financial contract when it still had time to run.
    It was like buying or selling a bet on a horse, halfway through the race.
    It opened up a new world of ever more complex investments, blossoming into a gigantic global industry.
    But when the sub-prime mortgage market turned sour, the darling of the financial markets became the Black Hole equation, sucking money out of the universe in an unending stream.

    It is interesting that in the various post hoc justifications we are seeing for flawed judgment and immoral behavior that a set of symbols assembled in a certain way are now to blame for the GFC.

    This very clever little graphic puts that notion to bed... Quantitative Finance Collector

    Chris T.