The Trillion Dollar Bet Documentary on Finance

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Table of Contents

Introduction
The Black–Scholes–Merton formula
Formula critics
Conclusion
Work Cited

Introduction

There are many great scientists that make some brilliant discoveries and completely change the sphere they are working in. Regardless of the field of work, it is always important to find new ways and solutions, simplify and improve the old models, and strive to make a scientific breakthrough. The Trillion Dollar Bet documentary was released by BBC in 1999 and provided a full story of the Black–Scholes–Merton formula – a real miracle in finance. The purpose of this paper is to discuss the documentary and provide its review.

The Black–Scholes–Merton formula

The trade sphere has a model that was developed to help people who are connected with the financial market. There is a rule in trading: if one wants to make money, he or she needs to take a risk. The Black–Scholes–Merton is a brilliant formula that was created to do something that no one has ever dreamed was possible. It is a mathematical model that can be deduced from the Black–Scholes equation. This formula provides a possible estimate of European-style options’ prices. It also shows that any option has its own special price in spite of its expected return and the security risk. This model provided mathematical legitimacy to the activities of many options markets and caused the changes in options trading. All around the world, people use this formula as it reduces the risks and increases the people’s chances of high profit.

What is the Trillion Dollar Bet about?

Trillion Dollar Bet is a documentary that was released by BBC in 1999. It tells the story of the Black-Scholes-Merton formula – a brilliant scientific discovery and one of the greatest options pricing models ever created in finance. This model was invented in 1973; its three creators, Fischer Black, Robert Merton, and Myron Scholes, were economists and won a Nobel Prize for their discovery. As it was said above, the financial rule is that if people want to get money, they need to take a risk. So, the three scientists decided to prove the rule wrong and show that two risky positions taken together are able to eliminate the threat itself. In other words, they wanted this formula to let people get money without any risks. However, when Black, Merton, and Scholes used the formula themselves, they started losing huge amounts of money day by day.

It is hard to imagine, but every day millions of dollars change their owners, and for everyone, there always exists hard competition and the possibility to lose thousands and millions by a single mistake. Hence, people hope that any model is able to help them reduce the risks, beat other traders’ instincts, and compete with the abilities and knowledge of the best ones. The documentary tells about Leo Melamed from the Chicago Mercantile Exchange (“The Midas Formula – Trillion Dollar Bet”). He has been a trader for 30 years and now has his own model of working. His assistant on the floor gives the necessary hand signals to the broker. Melamed gets all the information they both give him and also something that his assistant, broker, and other traders on the floor do not know. Melamed’s secret is that he is able to note the body language of other traders and understand if they are anxious, afraid, and nervous. Also, the amount and volume of noise on the floor are rather informative for the experienced trader. Every morning, Melamed identifies how the markets will probably be reacting and analyzes articles and newspapers to determine a direction.

Formula critics

Despite the fact that many people believe in this formula and use it actively, there are some individuals who do not trust it. For example, the documentary tells about professor Zvi Bodie who compares this formula to a coin (“The Midas Formula – Trillion Dollar Bet”). If flipping a coin many times, it may show heads dozens of times, but Bodie states that it does not mean that the one who flips it can influence the result. So, according to Bodie, the formula is just the luck that may or may not be. Before Bodie, in 1951, professor Paul Samuelson found some equations that showed the first complete mathematical formula of the financial market. He also thought that the markets changed randomly, and the prediction of their exact future was impossible. However, he was close to finding something that would completely eliminate all the risks. Someone just needed to create a model that would allow controlling the market.

Conclusion

Fischer Black and Myron Scholes started working on that formula in 1968. They found that the main elements of the Black-Scholes model were volatility, stock price, interest rate, level of risk, and duration of the contract. Black and Scholes realized that it was possible to control and estimate every part of the formula except the risk level. So, they needed to start thinking differently and then decided to make the risk less significant instead of finding its exact measure. However, Black and Scholes were not satisfied with the result and asked Robert Merton, the professor from Harvard Business School, for help. Together, they studied the formula again, used the Japanese mathematician’s theory, and adapted it for the Black-Scholes formula; the problem was solved. The formula worked; it eliminated risks and led to more contracts, exchanges, and money. This brilliant discovery is the reason the three economists got the Nobel Prize and are still known all over the world.

Work Cited

“The Midas Formula – Trillion Dollar Bet.”Vimeo, uploaded by FxTradeRadar, 2018, Web.

Click Here To Order Now!

The Trillion Dollar Bet Documentary on Finance

Do you need this or any other assignment done for you from scratch?

We have qualified writers to help you.

We assure you a quality paper that is 100% free from plagiarism and AI.

You can choose either format of your choice ( Apa, Mla, Havard, Chicago, or any other)