Observations on the Science of Finance in the Practice of Finance
This is a video from the MIT collection of a talk by Robert C. Merton of Harvard Business School. "There will be a time "beyond crisis," asserts Robert C. Merton, who delves into the dense science of derivatives -- a field he has fundamentally shaped -- to explain how the vast global economic collapse has come about, and how financial innovations at the heart of the collapse could also be tools for reconstruction.Merton uses deceptively simple graphs to show how risk propagated rapidly across...
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This is a video from the MIT collection of a talk by Robert C. Merton of Harvard Business School. "There will be a time "beyond crisis," asserts Robert C. Merton, who delves into the dense science of derivatives -- a field he has fundamentally shaped -- to explain how the vast global economic collapse has come about, and how financial innovations at the heart of the collapse could also be tools for reconstruction.
Merton uses deceptively simple graphs to show how risk propagated rapidly across financial networks, bringing down financial institutions. While he admits the crisis "is very big and complicated," Merton boils a piece of it down to the use of put options, a derivative contract that's been around since the 17th century. This asset-value insurance contract, a guarantee of debt, is the basis for the credit default swaps widely adopted by financial giants in the last few years -- now widely regarded as a primary cause of the meltdown. It turns out, says Merton, that the put "makes risky debt very complicated, and treacherous..."
Material Type:
Presentation
Technical Format:
Video
Date Added to MERLOT:
May 25, 2009
Date Modified in MERLOT:
May 25, 2009
Author:
MIT School of Humanities, Arts, and Social Sciences
Submitter:
Cathy
Swift
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Primary Audience:
College General Ed,
College Lower Division,
College Upper Division,
Graduate School
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Language:
English
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no
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unsure
Copyright:
yes
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no