Fischer Black and the Revolutionary Idea of Finance

Revolutions spring from unlikely sources. Fischer Black was an unlikely revolutionary. He thought like no one else. While teaching, his colleagues attacked problems with formulas and models. Fischer Black did not. He opted to explore them from as many different angles as he could conceive. Once solved, he generated a formula. Solving problems this way, Black found he avoided formula-dictated thinking ruts. His teaching style was bizarre. He got bored teaching regurgitated knowledge. In his view regular lectures were a waste of time. He developed an engaging teaching style by asking 50 open-ended questions. Combined with his insistence that students learn the language of finance, this interaction gave air to brilliant minds. Black cherry-picked great ideas. His students loved the vibrant seminars. Fischer Black became famous for what he cared less about: the Black-Scholes option model. Options were just a passing interest. He cared more about Capital Asset Pricing Model (CAPM) developed by Jack Traynor. He sought to apply it to economics. He failed to leave a legacy in traditional economics. Fischer Black had degrees in physics and mathematics but no formal training in economics. In academia, he became recognized as forward-thinking in finance, but out of his depth in economics. Robert Rubin, then the managing partner of Goldman Sachs, said it best when he sold his partners on the idea of hiring the academic Black. "We will learn from Fischer," he is quoted by the author as saying, "and he will learn from us." Fischer was egoless. He took rebuttals in stride. Open to change, he was an unapologetic believer in free markets. His unorthodox style sparked a revolution in the business of finance. His innovative thinking drove finance to the forefront of the science of economics. Perry Mehrling has written a brilliant biography about a brilliant man.

Author Perry Mehrling's excellent book is not merely a biography of Fischer Black, but also the story of the main threads of economic thought during the late twentieth century. More than that, it is the story of the economics profession, and of the great role that politics and personality plays in the acceptance of ideas. It is astonishing to learn how ruthlessly the profession excluded Black's ideas, although he was one of the most incisive economic and financial thinkers of his time, and it is inspiring to see how relentlessly and quixotically Fischer Black continued to press them. The parts of the book that are generally accessible are also fascinating. Unfortunately, far too little of the volume is accessible to the average business reader. Mehrling does a less than adequate job of explaining the great themes of Black's life and thought to lay readers. He notes the importance of the Capital Asset Pricing Model in Black's philosophy, but his account of the model will leave noneconomists scratching their heads. The same must be said of his account of other economic subjects. While we find that only readers with a fairly deep understanding of economics can reap this book's full harvest, that caveat should not deter the general reader from gleaning.

Fischer Black was my brother. What amazes me about this biography is how accurately Perry has portrayed his personality and habits. I was delighted to discover that he managed to describe the person I knew. Even more surprising is the fact that Perry has done this despite the fact that he never met Fischer. It is a tribute to the remarkable depth of his research.

In a remarkably well-researched biography, the author captures the inspiration, attitudes, ethos and peculiar characteristics of one of the best known financial engineers. The depth and thoroughness of the research on which the book is based upon is evident from the author's introduction where he says the book took 7 years to put together. Time well spent! Each clearly delinated and well-organized chapter provides good insights into at least one major aspect of Black's life - academic bent, inspiration sources, etc. The absence of 'traditional' biography writing style (unnecessary romantic school days stories and the like) is an additional bonus...Every chapter is chosen to provide some additional insights, and do not drone. However, the book is not for light-reading. Certainly readers interested in this book are probably well-versed with the work of Black. The book reads more like a "technical biography" - which is a good thing. Superb read.

This is an outstanding book about a finance revolutionary. This biography is as interesting as Sylvia Nazar "A Beautiful Mind" about John Nash, the pioneer of Game Theory. Fischer Black, the human being was as interesting as Nash. As a young man, he was quite the adventurer and engaged in casual sex and taking LSD. But, after suffering a failed marriage and the death of a close friend he recognized the risk of those activities. Thus, he started to live by the CAPM motto to manage the risk in his own life. He drove safe cars, wearing seatbelts before it was mandatory and adhering to a strict diet (fish and vegetables). He married another two times to finally get it right. During his second marriage, when it was not working out, he would seek female companions by posting personal ads in the local paper. And, he would encourage his wife to do the same! Later, he met his third wife through a dating service. Fischer Black became famous for what he cared less about: the Black Scholes option model. Options were just a passing interest. He cared more about CAPM developed by Jack Traynor. His lifelong ambition was to apply CAPM to economics. He failed to leave a legacy in economics. Perry Mehrling explains why. Fischer Black had degrees in physics and mathematics but no formal training in economics. His General Equilibrium theory clashed with both Keynesians and monetarists. While at Chicago, his General Equilibrium theory got no respect from Milton Friedman, the leading monetarist. Later, Paul Samuelson, the leading Keynesian at MIT, treated him just as badly. He could not get his economics papers published. In academia he became recognized as cutting edge in finance, but out of his depth in economics. Fischer was very much egoless. He took all the rebuttals from economics luminaries in stride. They never discouraged him to pursue his economics research. Also, he quickly adopted the binomial tree option model developed in 1976 by Cox-Ross-Rubinstein. He viewed it as faster and more flexible than his own Black Scholes model. Other common mortals would have hung on proudly to their own model. Not Fischer Black! Before Fischer Black finance was a minor discipline to economics. After Fischer Black, the reverse is truer. Even though he was the original quant on Wall Street, he really did not think like one. Fischer Black thought like no one else. While his MIT colleagues would attack problems head on with formulas and models, Fischer Black would not. He would explore a problem from as many different angles as he could think. Once he had essentially solved the problem conceptually in his head he would finally generate the formula. The formula was just the concrete representation of his solution. If you developed a formula first and a solution second, as his MIT colleagues did, you would get stuck in a thinking rut dictated by your formula. His teaching methods were bizarre. He got bored teaching already acquired