Fifty years ago, an equation called the Black–Scholes formula revolutionized finance. But, with time, its simplicity became a liability — and yet its legacy persists.
published the same year by Robert Merton, with whom Scholes shared the Nobel Prize in Economics in 1997, just two years after Black’s death.
They had devised a formula that became known as the Black–Scholes equation, a succinct expression of how much investors should be charged for financial products that allow them to mitigate the risks of their investments in assets whose value can fluctuate over time. The model’s impact is largely due to its simplicity, but it also stems from a curious combination of world events, and it precipitated a fascinating half-century in finance.
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