Video: The Black and Scholes Equation for pricing Stock Options – Attack of the Quants Revenge of the Traders – The story of Long Term Capital Management

An important lesson that I have learned from secondary sources can be synthesized with the lessons of the history portrayed in this video. 

• Once a trading pattern is discovered by and used by others its effectiveness goes away.    An example of this would be if the market always went down in the morning and up in the afternoon.  Soon traders would run contrary to this causing a feedback effect that causes the pattern to disappear.
• I know a person who writes software for making trades.  He is very secretive for a reason.  That reason is my first bullet point!

If the people originating the Black and Scholes equation wanted to make money with it they should have kept it secret!  One has to think that it has effectiveness since it was adopted by all the floor traders and is still in use today.

Time Line of the 1998 Crash