Fischer Black

Lore & Background

Fischer Black was born in the Georgetown neighborhood of Washington, D.C. He graduated from Harvard College with a major in physics in 1959 and earned a PhD in applied mathematics from Harvard in 1964. After working at Bolt, Beranek and Newman and later at Arthur D. Little, he met Jack Treynor and began working on the capital asset pricing model. Black held visiting and full professorships at the University of Chicago from 1971 to 1975, then taught at the MIT Sloan School of Management until 1984, when he joined Goldman Sachs, becoming a partner by 1986 and Director of the Quantitative Strategies Group.

In 1973, Black and Myron Scholes published 'The Pricing of Options and Corporate Liabilities,' which included the Black–Scholes equation. Black also contributed to monetary economics, arguing that discretionary monetary policy could not achieve Keynesian goals nor cause the harm monetarists feared. He proposed that business cycles result from unpredictable mismatches between technology and demand, making him an early contributor to real business cycle theory. His book 'Business Cycles and Equilibrium' (1987) challenged quantity theory and liquidity concepts, asserting that money is endogenous and that monetary and fiscal policies have little effect on business cycles.

Reader's Guide

Fischer Black's significance lies primarily in his co-development of the Black–Scholes option pricing model, which revolutionized financial markets by providing a rigorous method for pricing options. His work on the capital asset pricing model, alongside Jack Treynor and others, helped establish modern portfolio theory. Black's ideas in monetary economics and business cycles, though less celebrated, offered a distinctive equilibrium-based perspective that questioned both Keynesian and monetarist assumptions. His legacy is marked by the 1997 Nobel Memorial Prize awarded to his collaborator Myron Scholes and Robert C. Merton for the Black–Scholes model; Black was ineligible because the prize is not awarded posthumously. His contributions continue to influence quantitative finance, risk management, and economic theory.

Did You Know?

• Black was diagnosed with throat cancer in early 1994 and died in August 1995 at age 57.
• He was a student of MIT professor Marvin Minsky and submitted his research for a PhD in applied mathematics from Harvard in 1964.
• Black co-authored the Black–Derman–Toy interest rate derivatives model, developed for in-house use at Goldman Sachs in the mid-1980s.
• He was inducted into the Fixed Income Analysts Society Hall of Fame in December 1996.