Black was having a hard time in the late 60’s getting the world of finance to recognize his somewhat economic approach to valuing warrants. The University of Chicago, at the time, was quite interested in Black’s new ideas. The University of Chicago wanted an options exchange at the Chicago Board of Trade and Fischer Black might just be the guy to help them get there! The university offered Black a visiting professor position to teach finance in 1971.
The SEC approved of the option market idea, developed by James Lorie and Merton Miller, on October 14, 1971. With the Chicago Board Options Exchange quickly emerging, Black was in the perfect position to put his ideas to the test and publish the Black-Scholes formula.
A for John Doe.
ReplyDeleteFinance was in a state of transition at this time. Up until then it had been more like anthropology: recording the actions and secrets of shamans (i.e, the "water walkers") in the hope of gleaning some secrets that could be exploited more systematically. But then in come a bunch of guys from (the more technical side of) economics.
But these guys couldn't get published in economics' journals because they weren't doing economics, and they couldn't get published in finance journals because no one in that field understood what they were talking about.
It took Miller and Fama (at Chicago) to convince the editors of the journal published in-house there (the Journal of Political Economy - one of the top 3 in economics) to get Black-Scholes published.
It's somewhat surprising that Black got published at all ... he wasn't an academic, and academics often frown on publishing non-academics.
Extra credit for the first person to comment on the meaning of "finance is to economics as osteopathy is to medicine."
Osteopathy seems to be a radical idea that the body can heal itself - and it's not just body, but mind and spirit. Medicine seems to be getting out of hand thinking that there should be a drug out there to heal anything the body may contract. Osteopathy may have the bigger picture!
ReplyDeleteAs finance added new perspectives to economics, osteopathy seems to add another perspective to medicine. However, just as some doctors really don't know, nor care to know, anything about osteopathy, most economists at the time didn't know, nor cared to know, anything about finance.