The correct answer is:

e. LTCM early success as a hedge fund using BSM methodology.

Explanation:

• a. Incorrect because only Merton and Scholes won the Nobel Prize in Economics in 1997. Fischer Black was ineligible because he had passed away.
• b. Incorrect because Louis Bachelier was a French mathematician who pioneered the theory of speculation but was not associated with LTCM.
• c. Incorrect as Paul Samuelson did not discover Itô’s work but was influential in developing financial economics.
• d. Incorrect because the Black-Scholes-Merton (BSM) formula was developed in the early 1970s, not the 1950s.

Long-Term Capital Management (LTCM) was indeed a hedge fund that applied the Black-Scholes-Merton (BSM) methodology in its trading strategies, making statement e the correct answer.

Would you like more details on the concepts here or have any questions?

Related Questions:

1. Who were the primary developers of the Black-Scholes-Merton formula?
2. What was the role of Louis Bachelier in financial mathematics?
3. How did LTCM use the BSM model in its trading strategies?
4. What is Itô’s Lemma and its significance in financial mathematics?
5. Why did Fischer Black not receive the Nobel Prize in Economics?

Tip:

In finance, the Black-Scholes-Merton model is foundational for options pricing, and understanding its limitations is essential in complex financial markets.