Fischer Black and the Revolutionary Idea of Finance

praise for FISCHER BLACK AND THE REVOLUTIONARY IDEA OF FINANCE "e;The story of Fischer Black. . . . is remarkable both because of the creativity of the man and because of the revolution he brought to Wall Street. . . . Mehrling's book is fascinating."e; FINANCIAL TIMES "e;A fascinating history of things we take for granted in our everyday financial lives."e; THE NEW YORK TIMES "e;Mehrling's book is essential reading for anyone interested in the development of modern finance or the life of an idiosyncratic creative genius."e; PUBLISHERS WEEKLY "e;Fischer Black was more than a vital force in the development of finance theory. He was also a character. Perry Mehrling has captured both sides of the picture: the evolution of thinking about the pricing of risk and time, as well as the thinkers, especially this fascinating eccentric, who worked it out."e; ROBERT M. SOWLO, Nobel laureate and Institute Professor of Economics, Emeritus, Massachusetts Institute of Technology "e;Although I worked closely with Fischer for nine years at Goldman Sachs and clearly recognized both his genius and the breadth and originality of his ideas, until I read this book, I had only the vaguest grasp of the source of his inspiration and no understanding at all of the source of his many idiosyncrasies."e; BOB LITTERMAN, Partner, Kepos Capital "e;Perry Mehrling has done a remarkable job of tracing the intellectual and personal development of one of the most original and complex thinkers of our generation. Fischer Black deserved it: a charming and brilliant book about a charming and brilliant man."e; ROBERT E. LUCAS JR., Nobel laureate and Professor of Economics, The University of Chicago

praise for FISCHER BLACK AND THE REVOLUTIONARY IDEA OF FINANCE"The story of Fischer Black. . . . is remarkable both because of the creativity of the man and because of the revolution he brought to Wall Street. . . . Mehrling's book is fascinating."FINANCIAL TIMES"A fascinating history of things we take for granted in our everyday financial lives."THE NEW YORK TIMES"Mehrling's book is essential reading for anyone interested in the development of modern finance or the life of an idiosyncratic creative genius."PUBLISHERS WEEKLY"Fischer Black was more than a vital force in the development of finance theory. He was also a character. Perry Mehrling has captured both sides of the picture: the evolution of thinking about the pricing of risk and time, as well as the thinkers, especially this fascinating eccentric, who worked it out."ROBERT M. SOWLO, Nobel laureate and Institute Professor of Economics, EmeritusMassachusetts Institute of Technology"Although I worked closely with Fischer for nine years at Goldman Sachs and clearly recognized both his genius and the breadth and originality of his ideas, until I read this book, I had only the vaguest grasp of the source of his inspiration and no understanding at all of the source of his many idiosyncrasies."BOB LITTERMAN, Partner, Kepos Capital"Perry Mehrling has done a remarkable job of tracing the intellectual and personal development of one of the most original and complex thinkers of our generation. Fischer Black deserved it: a charming and brilliant book about a charming and brilliant man."ROBERT E. LUCAS JR., Nobel laureate and Professor of Economics, The University of Chicago

Acknowledgments ixForeword xvPreface xxiPrologue The Price of Risk 1ONE Thou Living Ray of Intellectual Fire 23TWO An Idea in the Rough 49THREE Some Kind of an Education 73FOUR Living Up to the Model 99FIVE Tortuous Economic Intuition 119SIX The Money Wars 139SEVEN Global Reach 165EIGHT Stagflation 189NINE Changing Fields 215TEN What Do Traders Do? 231ELEVEN Exploring General Equilibrium 255Epilogue Nothing Is Constant 283Appendix A A Financial Notes Chronology 299Appendix B A Newsletter Chronology 301Notes 303References 327Index 355