Ever since the call option was invented by Thales of Miletus about 26 centuries ago, savvy investors have used these and similar financial instruments to make money.
But even though options have been around for a very long time, it wasn't until the last 12 decades and mostly within the last 60 years, in which the math needed to determine what their price should be was finally developed.
In the following 31-minute video, Veritasium's Derek Muller explains the origins of options and the Nobel-prize winning development of the math behind what became the world's first trillion dollar equation. Which turned out to be closely related to the math physicists use to describe the diffusion of heat.
This being a video from the modern internet, there's a mattress commercial built into the middle of the video. If you jump to the 16:02 mark after it starts, it is something you can skip past, unless you're perhaps in the market for a mattress.
In any case, the story is fascinating, because it also involves the one of the most successful investment managers of all time, a mathematician who earned that title by betting against the widely believed efficient market hypothesis by uncovering not-so-random patterns within it and using options to realize gains to beat the market year after year.
Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:
ironman at politicalcalculations
Thanks in advance!
Closing values for previous trading day.
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