“NOVA: Trillion Dollar Bet” (aka: \”BBC: The Midas Formula\”)Although B-S was originally developed for pricing stock options, the formula that we have been using in class for currency options is virtually identical. Specifically, except for the Tr e − * term that discounts by the foreign interest rate, and of course the fact that the underlying asset is a foreign currency rather than a share of stock, the formulas are exactly the same. In addition to the development of the B-S formula, the video brings together many concepts that we have seen in class this semester, including (in no particular order):Besides these, the video also gives a great glimpse into the world of academic finance, the inner workings of financial markets and institutions, and the nature of financial crises. While you are watching, note the similarity between what got us into trouble back then and what got us into trouble today (e.g., excessive debt/leverage to fuel a property boom, underassessment of risk and/or overconfidence in our ability to deal with risk, government bailouts, etc.).
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