Horizon Season 1999 Episode 13 The Midas Formula

In the thirteenth episode of the 1999 season of Horizon, titled "The Midas Formula," viewers are taken on an investigative journey into the complex world of finance, exploring how mathematical models and algorithms have transformed the financial landscape. The episode delves into the history of these financial formulas, which were originally created in the 1970s by mathematicians and physicists looking to analyze risk and create profitable investments.

Viewers are introduced to some of the key figures in the creation of these formulas, including Ed Thorp, an American mathematician who developed a system to beat the casino game of blackjack, and then turned his attention to the stock market. Thorp's pioneering work led to the development of the Black-Scholes formula, which formed the basis of modern financial derivatives and options trading.

The documentary also explores the role of the financial industry in the development of these formulas, which eventually became known as "quantitative finance" or "quant" for short. As more and more traders turned to these complex mathematical algorithms to create a competitive edge, the industry became increasingly reliant on a select group of elite "quants" who were able to crack the code of the markets.

However, as viewers learn, the overreliance on these formulas also played a significant role in the global financial crisis of 2008, which was triggered by the collapse of the subprime mortgage market. The documentary highlights some of the limitations of these mathematical models, which failed to account for the complex interconnectedness of financial systems and the human emotions that drive market behavior.

Despite these limitations, the documentary ultimately presents a nuanced view of the role of mathematical models in finance, highlighting both their potential benefits and drawbacks. Throughout the episode, viewers are treated to insightful interviews with leading experts in the field, including renowned mathematician and economist Paul Wilmott, who provides a clear, if challenging, overview of some of the key concepts behind quantitative finance.

"The Midas Formula" is a compelling exploration of how mathematical models have transformed the financial world, and the ongoing debate about their role in shaping the future of the global economy. Through engaging and informative storytelling, the episode offers a glimpse into one of the most fascinating and complex fields of modern finance.