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To: willcousa who wrote (179987)12/22/2004 5:15:48 PM
From: Saturn V  Read Replies (3) of 186894
 
Ref it was clear to you that it does not say that B/S was used by LTCM in its trading and hedging

I disagree!

Here is quote from the middle of the Nova excerpt
pbs.org
"NARRATOR: Within months they had raised three billion dollars and were ready to start investing across the globe. ..they devised one of the most ambitious investment strategies in history. Its success depended on absolute secrecy. Not even their investors were allowed to know what they were doing. Analyzing historical data, they used probability to bet that key prices would move roughly as they had in the past. To protect themselves against unwanted risk, they relied on an insight of the Black-Scholes formula - dynamic hedging. In effect, offsetting risk by taking bets in the opposite direction. Supremely confident, LTCM placed vast sums of money on the markets.

MYRON SCHOLES: The broad strategy of LTCM was to figure out how to hedge out the risks of your position such that you can do a lot of it much more than you can do if you didn't hedge out the risks
"

It is very clear that the Black-Scholes model was indeed being used by LCTM, and the developers of the model Scholes and Merton were the ones implementing the strategy.
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