In the light of recent events, it may appear that attempting to model the behaviour of financial markets is an impossible task. However, there are mathematical models of financial processes that, when applied correctly, have proved remarkably effective. Angus Brown looks at one of these, a simple model for option pricing, and explains how it takes us on the road to the famous Black-Scholes equation of financial mathematics, which won its discoverers the 1997 Nobel Prize in Economics.
David Spaughton and Anton Merlushkin work for Credit Suisse First Boston, where they provide traders in the hectic dealing room with software based on complicated mathematical models of the financial markets. PASS Maths interviewed them at their offices in Canary Wharf in London.