The Trillion Dollar Equation

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A huge thank you to Prof. Andrew Lo (MIT) for speaking with us and helping with the script.

We would also like to thank the following:
Prof. Amanda Turner (University of Leeds)
Owen Maher (Electrify Video Partners)

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References:

Images & Video:

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Special thanks to our Patreon supporters:
Adam Foreman, Anton Ragin, Balkrishna Heroor, Bill Linder, Blake Byers, Burt Humburg, Chris Harper, Dave Kircher, David Johnston, Diffbot, Evgeny Skvortsov, Garrett Mueller, Gnare, I.H., John H. Austin, Jr. ,john kiehl, Josh Hibschman, Juan Benet, KeyWestr, Lee Redden, Marinus Kuivenhoven, Max Paladino, Meekay, meg noah, Michael Krugman, Orlando Bassotto, Paul Peijzel, Richard Sundvall, Sam Lutfi, Stephen Wilcox, Tj Steyn, TTST, Ubiquity Ventures

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Directed by Will Wood and Derek Muller
Written by Will Wood, Emily Zhang, Petr Lebedev and Derek Muller
Camera operation by Raquel Nuno
Additional research by Gregor Čavlović
Edited by Jack Saxon and Trenton Oliver
Animated by Fabio Albertelli, Jakub Misiek, Ivy Tello, David Szakaly and Will Wood
Produced by Will Wood, Han Evans and Derek Muller

Thumbnail by Ren Hurley
Additional video/photos supplied by Getty Images and Pond5
Music from Epidemic Sound

[cyananamation]

"I can calculate the motions of heavenly bodies, but not the madness of people" this gotta be one of the hardest quotes.

[CassyZee]

When a physics channel explains F&O better than any finance channel 🙏🏻

[EkapolTharasiriroj]

You are better at explaining financial economics than most econ/finance channel on youtube

[ST-nuib]

Unfortunately, Prof. Jim Simons passed away today (May 10, 2024). As a graduate student in math department of Stony Brook University, I came to know this earlier. He's genius of a person. Rest in peace, rest in knowledge. I always wanted to meet him but the nature has other plans. Om Shanti.

[Novascrub]

A young economist and an old economist are walking down the street, and the young economist says, "Look! A $20 bill!". The old economist says, "Nonsense. If there were a $20 bill just laying on the ground, someone would have picked it up already."

[stevezelaznik]

Wow! As somebody who used to work with derivatives in my job I can say this is hands down the best, most accessible explanation of the Black Scholes equation that I've ever seen. This channel makes teaching look easy.

[neutron]

It's so fascinating to see the dots being connected from finance to math to a physics breakthrough, science is beautiful

[Alvera-ck]

Every crash/collapse brings with it an equivalent market chance if you are early informed and equipped, I've seen folks amass up to $1m amid economy crisis, and even pull it off easily in favorable conditions. Unequivocally, the collapse is getting somebody somewhere rich.

[alistairblaire]

The style of this video is brilliant. It reminds me of a film where there are multiple plot lines and these seemingly unrelated subplots satisfyingly come together at the end.

[ZennyB]

Not even 5 minutes in but this is easily the best explanation of stock options I've ever seen

[jaket]

In case Derek or anyone on his team reads this, $100 in the medallion fund does not compound yearly at 66%. It yields 66% per year. The size of the medallion fund is limited by the size of the options market. If the fund grows too large, their edge experiences diminishing returns. By this fundamental limitation of their strategy, the fund only scales with the efficacy of their edge and the rest is liquidated for employees and original shareholders. If it was truly compoundable, then the fund wouldn't be closed and an efficient market would infinitely allocate to it until itintroduced price distortions that arbitrage the edge. The initial statement about $100 becoming billions in decades is not true.

[Coerciveutopian]

I love that his answer about whether this helps or not is basically "when things are good it's fine, but when things go bad it makes things much worse". Which...yeah.

[ankur.mahajan]

I don't think that there is any other channel that brings such kind of interesting technical content in such lucid terms.

[matthiaswuest]

As a pure math undergrad turned math teacher turned stats masters turned actuary... just wow. I had a smile across my face throughout as you connected the dots across the history of this topic. Fantastic as usual

[Retotion]

I've never fully grasped how options worked until now, I swear other people go out of their way to make it appear more complicated than it really is.

[blazejecar]

you have such a gift to explain these things. Your video on Fourier transformation helped me immensely in my PhD dissertation actually (i still had to find "legit" sources cause a veritasium video doesn't count, but I understood it better from you than from any "proper" papers). Please never stop making these, you explain complicated things so well

[ceddavis]

Worked in the OTC derivatives industry for years, and did many training classes. A great video. As an interesting personal note, I once worked with a quant group who had Fisher Black's old office, which had been turned into a "fish bowl" type group work space. It was a great partner's corner office, but no one would take it, hence being turned into a team office. He had only died recently, and no one would take it, as it would have been viewed as pretentious. Such was the esteem he was held in.

[Ali-Mhsn]

Veritaseum videos are like a Nolan movie. It goes through multiple different story lines, and finally converges into one thing that finally lets you make sense of the whole story.

[PriyaS-ewkb]

The fact that nobody talks about the book whispers of manifestation on borlest speaks volumes about how people are stuck in a trance

[satvikpatil]

"What did Simons get right that Newton got wrong? For one thing Simons was able to stand on the shoulders of giants." Masterpiece.