Thank you for downloading from the BBC.

The details of our complete range of podcasts and our terms of use

go to BBCWorldService.com slash podcasts.

This is more or less on the BBC World Service.

The theme of this week's programme is the equation that changed finance forever.

It's not every day that someone writes down an equation that ends up changing the world.

But it does happen sometimes and the world doesn't always change for the better.

We're going to hear the story of the equation that transformed Wall Street

and the arguments over whether it made the world a better place

or helped cause the financial mess we've all been dealing with for the past five years.

It's called the Black Shoals Formula.

It was first written down in the early 1970s

but our story starts earlier than that, a lot earlier.

The Black Shoals equation came from attempts to

put a sensible price on a financial option.

So financial options go back well over a hundred years.

This is Ian Stewart, Professor of Mathematics at Warwick University in the UK

and the author of 17 equations that changed the world.

A simple futures contract says,

I will agree to buy rice from you in one year's time

at a price that we agree right now.

An example of an option is a contract where we agree that I can buy rice from you

...