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The Marginal Revolution PodcastAuthor: Mercatus Center at George Mason University
Marginal Revolution has been one of the most influential economics blogs in the world for over two decades thanks to its sharp economic analysis and thought-provoking ideas. Now, co-creators Alex Tabarrok and Tyler Cowen are bringing their nerdy winsomeness to your earbuds. Each episode features Alex and Tyler drawing on their decades of academic expertise to tackle whatever economic idea is currently tickling their noggins. Language: en Genres: Science, Social Sciences, Society & Culture Contact email: Get it Feed URL: Get it iTunes ID: Get it |
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The Quest to Price Options
Episode 7
Tuesday, 17 December, 2024
In the final episode of Season 1, Alex and Tyler explore one of the most consequential quests in the history of economics and finance: the decades-long search for a formula to price options. From Louis Bachelier's groundbreaking work in 1900 to the eventual triumph of Black, Scholes, and Merton in the 1970s, they trace how brilliant minds across mathematics, physics, and economics gradually unlocked the how to properly price financial instruments like calls and puts. Along the way, they examine how this theoretical breakthrough revolutionized modern markets, sparked the creation of the Chicago Board Options Exchange, and transformed our understanding of uncertainty and risk management. The conversation ranges from the hidden histories of early options traders to how options theory now shapes everything from portfolio insurance to oil well investments to mega-sized chip plants. They close by reflecting on how options theory has become fundamental to modern decision-making far beyond trading floors, revolutionizing how we think about and manage uncertainty across the entire economy. Transcript and links: https://www.mercatus.org/marginal-revolution-podcast/quest-price-options Stay connected: Follow Alex on X: https://x.com/ATabarrok Follow Tyler on X: https://x.com/tylercowen See Alex and Tyler's recent posts on Marginal Revolution: https://marginalrevolution.com/ Chapters 00:00 - The puzzle of pricing options 03:46 - Louis Bachelier's contribution 09:52 - Enter Paul Samuelson 15:05 - Black, Scholes, and Merton 27:05 - Kassouf, Thorp, and cashing in on options theory 32:28 - Other applications of options pricing theory Recorded 4/12/2024
