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The Actuary The magazine of the Institute & Faculty of Actuaries

Fischer Black and the Revolutionary Idea of Finance

Perhaps not quite in time for reading on the beach, Fischer Black and the Revolutionary Idea of Finance by Perry Mehrling (ISBN 0-471-45732-9) is published by Wiley in August.

Author Mehrling, a professor of economics at Columbia University in New York, tells in a very readable style the story of the life and the ideas of the ‘Einstein of finance’ who died just ten years ago this month. Actuaries who know of Black only through the results of his work with Myron Scholes and Robert Merton will find much more to interest them here.

‘Great wits are sure to madness near allied, and thin partitions do their bounds divide’, said John Dryden and his observation is substantially borne out by the story of Fischer Black’s restless quest for unification of financial and macroeconomic theory and for stability in his personal life. His quest took him all over the United States to several leading academic institutions and in the private sector a career which had started at Arthur D Little finished with Goldman Sachs on Wall Street.

Mehrling’s economics background is critical to doing justice to Black’s ideas including positioning these in the context of American and world history of economic thought. He describes intriguingly how one single and revolutionary idea – the capital asset pricing model – dominated Black’s thinking and was a form of lens through which he looked at the problems of finance.

There are not many books which on first finishing cry out to be read over again – it is credit to both subject and author that Fischer Black and the Revolutionary Idea of Finance is one of these.