Risk Latte - Once Again an Infinite Series

Once Again an Infinite Series

Team latte
Aug 23, 2005

Sometime in the summer of 1997 or 1998 the head options trader of a bulge bracket European bank in Asia asked a Ph.D. candidate who was interviewing for a summer job in the bank the following question:

How do you solve the following equation?

The options trader was a quantitative trader and liked to tyrannize all the new recruits to his desk. The trouble was the trainee applicant was half way through his Ph.D. in some branch of Engineering and for some reason hadn't disclosed this in his resume perhaps, for the fear of being rejected or ridiculed. But whatever the case maybe the head options trader wanted to impress upon the trainee that knowledge of mathematics is so important to quantitative (or computational) finance and perhaps, at the same time, wanted to throw this trainee off balance by asking a math question in a finance interview.

The trainee, to the complete surprise of the options trader, used a pen and a paper and after around a minute or so blurted out ¡§the answer will approximate 1.6¡¨. The trainee was eventually offered a summer job that year, but he declined. The options trader was so impressed by this guy that he kept on pursuing the trainee to join his team. It is rumored that they are now working as a team in another bank.

Our method of solving the problem:


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