Fisher Black (January 11, 1938 - August 30, 1995), American
Economist

Fischer Black was one of the most accomplished economists of the generation. Black earned a Ph. D. in applied mathematics from Harvard University in 1964. After graduating he worked at the consulting firm of Arthur D. Little, Inc. Here, he was first exposed to economic and financial consulting and also met his future collaborator Jack Treynor. Treynor was one of the co-developers of the distinguished Capital Asset Pricing Model (CAPM). The key insight of the CAPM was that returns on an asset are proportional to beta, which is the sensitivity of the asset to fluctuations in the market index.

Fischer Black, Michael Jensen and Myron Scholes worked on the CAPM model and published a renowned testing paper: The capital asset pricing model: some empirical tests. The research paper expressed that low-beta assets generated "too high" returns as compared with that predicted by the CAPM.

Black developed this idea in two directions - in terms of developing new theories, and in terms of designing a fund which would exploit this anomaly. In 1971, Fischer Black began to work at the University of Chicago. He later left the University of Chicago to work at the MIT Sloan School of Management. In 1984, he joined Goldman Sachs.

Fischer's most impressive work is the Black-Scholes formula which calculates the price of a call option. In 1973, Black, along with Myron Scholes, published the paper 'The Pricing of Options and Corporate Liabilities' in 'The Journal of Political Economy'. This remains his most famous work and includes the Black-Scholes equation.

According to the Black-Scholes formula a call option is a contract that gives the holder a right, but not an obligation, to buy a given security at a precise date in the future at a particular price (called the strike price). If the market price on the expiration date is lower than the strike price, then the option proves to be worthless. The question of how a call option should be priced had been the subject of a long intellectual chase, beginning in the early sixties. Many brilliant economists, including Paul Samuelson of MIT, realized the drawback of this system from both theoretical and empirical points of view. The Black-Scholes team worked on this dilemma from 1968 to 1971,with a capable student of Samuelson's named Robert Merton.