Revolutionary Black-Scholes Option Pricing Model is Published by Fischer Black, Later a Partner at Goldman Sachs

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Published in 1973, the Black-Scholes Option Pricing model brings a new quantitative approach to pricing options, helping fuel the growth of derivative investing. 

Fischer Black and Myron Scholes first met at the Massachusetts Institute of Technology (MIT), the start of a working partnership that would last for 25 years. Their crowning achievement was the Black-Scholes Option Pricing model that revolutionized investing and ultimately led to a Nobel Prize.

Fischer Black, later a Goldman Sachs partner, and Myron Scholes published "The Pricing of Options and Corporate Liabilities" in the May-June 1973 issue of the Journal of Political Economy.  In it, Black and Scholes showed how the price of a stock option could be determined from the price of the underlying stock, the volatility of the stock, the exercise price and maturity of the option and the interest rate. The article, one that would fuel the modern derivatives market, was originally rejected for publication by scholarly journals. As the authors worked to get their research published, they put their theory to the test with actual market trading.

Fischer Black joined Goldman Sachs in 1984 and was a leading voice in both academia and the business of finance, eventually serving as a Partner and Director of the Quantitative Strategies Group at the firm.  In addition to the Black-Scholes Option Pricing model, Black was an early advocate of the use of passively managed index funds, as well as co-creator of the Black-Derman-Toy Model for interest rate derivatives and the Black-Litterman Global Asset Allocation Model.

Fischer Black died on August 30, 1995 at age 57. Upon his death, Goldman Sachs noted that “Fischer made very significant contributions across many areas at Goldman Sachs. For his creativity and original thinking, his thoughtfulness and dry wit, we shall miss him.”

In 1997, the Alfred Nobel Memorial Prize in Economic Sciences was presented to Robert C. Merton (who had developed the model further) and Myron S. Scholes for “a new method to determine the value of derivatives.”  Fischer Black was ineligible, as the Nobel is not awarded posthumously.  The official announcement stated, “Black, Merton and Scholes laid the foundation for the rapid growth of markets for derivatives in the last ten years.  Their method has more general applicability, however, and has created new areas of research – inside as well as outside of financial economics. [… Their] method has become indispensable in the analysis of many economic problems.”


This article was originally published as part of a series commemorating the 150th anniversary of Goldman Sachs' founding in 1869.