On 12.02.2012 18:10, math-fun-request@mailman.xmission.com wrote:

Message: 3 Date: Sun, 12 Feb 2012 08:36:52 -0800 From: Henry Baker<hbaker1@pipeline.com> To: math-fun<math-fun@mailman.xmission.com> Subject: [math-fun] Ian Stewart: The mathematical equation that caused the banks to crash Message-ID:<E1RwcQo-00055e-AM@elasmtp-curtail.atl.sa.earthlink.net> Content-Type: text/plain; charset="iso-8859-1"

FYI -- Summary: Distributions in the real finanacial world have tails longer than Gaussian.

The mathematical equation that caused the banks to crash

The Black-Scholes equation was the mathematical justification for the trading that plunged the world's banks into catastrophe

Ian Stewart The Observer, Saturday 11 February 2012

link for the article: http://www.guardian.co.uk/science/2012/feb/12/black-scholes-equation-credit-... That article is - with all respect - a kind of sensationalism (and advertising for the book in the link?). Roughly that formula is used for some normalization, but not the way the author asserts. Besides that actual models care for 'fat tails' those risks are treated by 'rules'. And it cares only for *1* position, banks have many thousands. The more sound saying is that correlations killed positions. Besides that it had been human decisions, knowing that those risks are modeled imperfectly and ignoring that. Or - with some sarcasm - would the author assert the same for the case that Greek et al go to bust? However I have to admit that it is years ago I cared for that pricing stuff ...