This is the third in a series of books about the 'great minds' in the history and theory of finance. The first book in the series examines the role of returns in our personal financial decisions. The second book adds risk and uncertainty to the mix. In the third book, Colin Read looks at the innovators who took the simple finance models of the 1940s and 1950s and developed from them the tools we use today to analyze the value of securities. These tools also revolutionized the study of finance and heralded in a new and distinctly American quant school of finance and decision making over time. This book chronicles the great minds who were transformational in taking the Ivory Tower to Wall Street. They answer the following questions: How do we measure risk? Can we standardize how our measure of risk affects a market-determined securities price? How does time affect the price path of a security? And, how does one determine the price of an option that derives its value based on the value of an underlying security? Finally, how can we use these tools to diversify our risk and optimize our portfolio? Their solutions to these questions transformed the static and theoretical world of economics into one that could cope with the quantification and time dynamic needs of modern finance. The author examines the pricing of securities and the risk/reward tradeoff through the legends, contribution, and legacies of Jacob Marschak, William Sharpe, Fischer Black and Myron Scholes, and Robert Merton. These Pricing Analysts provided us with the first effective models that allow the practitioner to price risk and the value of individual securities. They effectively bridged significant advances from the life cyclists in the 1940s and the portfolio theorists of the 1950s, and brought theory into practice. In doing so, these great minds forever established the relevancy of financial theory on the functioning of global financial markets. They also forever changed finance the clearly established the discipline as distinct from economics. This profound influence on both theory and practice is a hallmark of great minds.
Preface to the Series Introduction A Roadmap to Resolve the Big Questions PART I:JACOB MARSCHAK The Early Years The Times The Theory Applications Life and Legacy PART II: WILLIAM FORSYTH SHARPE, JOHN LINTNER, JAN MOSSIN, AND JACK TREYNOR The Early Years The Times The Theory Applications The Nobel Prize, Life, and Legacy PART III:FISCHER BLACK AND MYRON SCHOLES The Early Years The Times The Theory Applications The Nobel Prize, Life, and Legacy PART IV: ROBERT MERTON The Early Years The Times The Theory Applications The Nobel Prize, Life, and Legacy PART V: WHAT WE HAVE LEARNED Combined Contributions Conclusions Glossary Index Endnotes
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