The Math Formula That Lead To The Financial Crash

"It's not every day that someone writes down an equation that ends up changing the world. But it does happen sometimes, and the world doesn't always change for the better. It has been argued that one formula known as Black-Scholes, along with its descendants, helped to blow up the financial world."

So goes the saga of the stock market. This is a lesson in hubris. It is also a warning: Never think that a correct, clever answer will always be correct or that a practice based on theory will always work.

This excellent article on BBC News' website describes the equation that may have been at least partially responsible for the financial meltdown. I won't go into a polemic on this subject. I will invite you to read the article and make your own decision.

But remember, the year after Myron Scholes won the Nobel prize, his hedge fund crashed.