Resumen de Physics in finance: Veritasium’s “The trillion dollar equation”
As a fan of Derek Muller’s physics YouTube channel “Veritasium,” I was very pleased to watch his new video presentation on the thoroughly intertwined history of finance and physics. In approachable undergraduate language, this 30-minute video reconstructs the development of the Nobel-prize winning Black–Scholes/Merton financial risk equation, describing how a partial differential equation revolutionized the finance industry by more accurately pricing risk in trading, for example, exchange-traded options (puts and calls on derivatives), over-the-counter derivative securities, securitized debt, and credit default swaps (think about the movie “Margin Call”). Muller also reviews some of the history of scientists and mathematicians dabbling in financial markets, including Sir Isaac Newton’s stock losses trying to predict the “madness of people,” and Greek philosopher Thales of Miletus successfully buying call options on olive presses in 600 BC. The video presents how call and put options function, plots profit and loss on options, and presents risk equations and the related analyses for trading options as investing tools.
