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1 of 1 people found the following review helpful
5.0 out of 5 stars I liked this book, May 29, 2012
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This review is from: Pricing the Future: Finance, Physics, and the 300-year Journey to the Black-Scholes Equation (Hardcover)
Too many of us have learned options strategies and theory from texts that present it all in packages, now backed up by Excel spreadsheets with all the formulas embedded in them, that give no reference to where it all came from. Or, alternatively, we have been forced to study the Black-Scholes equation and the Merton replicating portfolio as if the underlying math also sprang full-blown from the creative minds of those three scholars. And too many of us who teach options choose one of those routes or the other, depending on our own tastes, without setting them in a broarder context than as a follow up to lectures on efficient frontiers and CAPM. George S. Szpiro has given us a readable account of how the theory of option pricing evolved to the point that Scholes and Merton (and Black, if he had lived longer) merited a Nobel Prize for their contibution to economics. Practically every element of the theory was built on great breakthroughs by individual mathematicians, physicists, biologists, and even other economists over centuries, including scholars who themselves earned Nobel Prizes in their fields. But the process was hardly linear, and many of the models soon proved to have serious flaws, which later scholars corrected. By giving us bigraphical highlights of dozens of scholars, Szpiro provides us with a vivid case study of how science moves forward. And in the end, he notes that even the Black-Scholes-Merton model didn't account for fat tail risk, that there is more work to be done. Well, any one who is seeking to come up with a better model should read this book. For one, you may find that your approach has already been tried and found wanting. Or, better, you might find the kernel of an idea that all those great minds have not fully fleshed out.
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Location: Middlebury, VT United States

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