Pricing the Future
Pricing the Future
Finance, Physics, and the 300-Year Journey to the Black-Scholes Equation: A Story of Genius and Discovery
Basic Books (AZ), Hardcover, 9780465022489, 298pp.
Publication Date: November 29, 2011
In Pricing the Future, financial economist George G. Szpiro tells the fascinating stories of the pioneers of mathematical finance who conducted the search for the elusive options pricing formula. From the broker's assistant who published the first mathematical explanation of financial markets to Albert Einstein and other scientists who looked for a way to explain the movement of atoms and molecules, Pricing the Future retraces the historical and intellectual developments that ultimately led to the widespread use of mathematical models to drive investment strategies on Wall Street.
Franklin Allen, Nippon Professor of Finance and Economics, The Wharton School of the University of Pennsylvania
“George Szpiro has written a wonderful book. Often finance is viewed as one of the driest of fields. Szpiro makes the history of the option pricing formula fascinating at many levels. He starts with the history of options, bringing in the Tulipmania, the Dutch East India Company, the Amsterdam Bourse, Joseph de La Vega, John Law’s colorful life and on and on. The mathematical tools needed for deriving the formula and the people who developed them are also heroes of the tale. The climax is reached with Fisher Black, Myron Scholes and Robert Merton’s time together at MIT and the derivation of the formula that revolutionized finance. It is a book that is very difficult to put down. This will be true for beginning students of finance as well as the highest earning traders. I thoroughly recommend it!”
“One of the major intellectual achievements of the 20th century was the theory of option pricing. This is its story, and it’s absolutely fascinating. Options have been around since the buying and selling of tulips and the very first efforts of investors to control their downside risk. But the economic value of such protections was not finally understood until the Nobel Prize winning research of Fischer Black, Myron Scholes, and Robert Merton in the 1970’s. It could not have happened without 350 years of serious thinking by botanists, physicists, chemists, and mathematicians. Finally, by 1960 all the pieces were in place, and Black, Scholes, and Merton solved the puzzle. The book should be required reading of all first year PhD students in finance, and economics, simply to see what is needed for path-breaking research. For the rest of us with an interest in the origins of important ideas, this is a great read.”
Sylvia Nasar, author of Grand Pursuit: The Story of Economic Genius and A Beautiful Mind: The Life of Mathematical Genius and Nobel Laureate John Nash “George Szpiro’s crisp prose, clever vignettes and refreshingly concise explanations make finance history go down like gelato on a summer’s day.”
“Szpiro unravels the complexity of the Black-Scholes equation and its fascinating relationship to Einstein’s application of statistics in explaining the random motion of molecules and to Norbert Wiener’s discovery of Cybernetics. In the case of options, it is option prices rather than molecules that jiggle. . . . An interesting history of mathematics and its application to economics and the world of high finance.”
Booklist “Recounting the lineage of the options pricing equation, Szpiro launches from an example of irrational exuberance that led to ruin—Holland’s tulip mania in the 1630s—into the Paris bourse of the late 1800s, when a series of math-minded characters pondered the pricing problem. As their biographies, some quite dramatic and tragic, carry his narrative forward, Szpiro covers how they borrowed from physics its formulas about the random movement of atoms, which they then applied to volatile stock prices. . . . Szpiro’s tale should fascinate readers who follow the markets.”