theorywatch

Finished Perry Mehrling’s excellent Fischer Black and the Revolutionary Idea of Finance recently. (I had thought of using Black as one of my “practitioner” theorists but instead went with Jack Treynor, as Black seemed more much academically focused, despite his stints at Arthur D. Little, Wells Fargo, and Goldman Sachs.) Mehrling’s book is an interesting blend of biographies of the man himself and of his theories, but what I liked most was the description of Black’s method of teaching: instead of lecturing, which he felt was a total waste of his own valuable time, he would work through the “50 big questions” in finance with each class. (And to do this back in the 70s was very innovative indeed!) Apparently the students loved it, and many dreamed of having Dr. Black make a note to himself about their comment, as that meant it was something that he wanted to think about.

To me, Black’s most intriguing quote is: “Information is more valuable sold than used” (page 138). He actually published an options-oriented newsletter giving his own proprietary estimates of volatility while he was teaching at Chicago, instead of being involved with trading at the Chicago Board Options Exchange, which was made possible at least partially because of his theories. Perhaps fellow options geniuses Robert C. Merton and Myron Scholes should have taken that advice instead of helping to found Long-Term Capital Management! (Though this comment does not sound nearly as snide now as it did before every possible risk management vehicle crashed and burned in the past year or so.)

But what Black is best known for is, of course, not receiving the 1997 Nobel Prize in Economics for the Black-Scholes-Merton model (shared instead by Merton and Scholes) because he succumbed to throat cancer in 1995 (and the Prize is not awarded posthumously, alas.) On the other hand, although he died at 57, it seems as though he lived his life pretty much exactly as he might have liked. And, of course, both his children and his theories survive him.