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The Contributions of Professors Fischer Black, Robert Merton, and Myron Scholes to the Financial Services Industry

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Author Info
Terry Marsh (Walter A. Haas School of Business, U. C. Berkeley)
Takao Kobayashi (Faculty of Economics, University of Tokyo)
Abstract

This paper is written as a tribute to Professors Robert Merton and Myron Scholes, winners of the 1997 Nobel Prize in economics, as well as to their collaborator, the late Professor Fischer Black. We first provide a brief and very selective review of their seminal work in contingent claims pricing. We then provide an overview of some of the recent research on stock price dynamics as it relates to contingent claim pricing. The continuing intensity of this research, some 25 years after the publication of the original Black-Scholes paper, must surely be regarded as the ultimate tribute to their work. We discuss jump-diffusion and stochastic volatility models, subordinated models, fractal models, and generalized binomial tree models, for stock price dynamics and option pricing. We also address questions as to whether derivatives trading poses a systemic risk in the context of models in which stock price movements are endogenized, and give our views on the "LTCM crisis" and liquidity risk.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-120.

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Length: 29 pages
Date of creation: Jun 2001
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Handle: RePEc:tky:fseres:2001cf120

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  19. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September. [Downloadable!] (restricted)
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