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The Mathematical Equation that Caused the Banks to Crash


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Black-Scholes equation

In the Black-Scholes equation, the symbols represent these variables: ? = volatility of returns of the underlying asset/commodity; S = its spot (current) price; ? = rate of change; V = price of financial derivative; r = risk-free interest rate; t = time.

Credit: Asif Hassan / AFP/ Getty Images

It was the holy grail of investors. The Black-Scholes equation, 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.

From The Guardian
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