Black-Scholes-Merton

Today's article continues from yesterday's and is the fourth of the series started September 11, 2006 entitled "Back To School".

GRAD SCHOOL
Super-educated Myron Scholes and Robert C. Merton both had Ph.D.’s and both got the Nobel Prize in Economics in 1997. But those super-educated Ph.D.’s were super-disasters as traders. They earned the distinction of creating one of the biggest financial disasters in recent history. They created a $4.6 billion loss at their hedge fund Long-Term Capital Management and went out of business after a few years of operation!

If you trade options, you may be familiar with the "Black-Scholes" option pricing model. Myron Scholes and Robert C. Merton were two of the creators of that model. If you're using that model in your option trading, beware that the creators of it got disastrous results.

Continued tomorrow...

Copyright 2006 Raymond T. Lee. All rights reserved.
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