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The Black–Scholes paper: a personal perspective

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  • Anthony Neuberger

    (City, University of London)

Abstract

This is a personal assessment of the intellectual contribution of the Black–Scholes model of option pricing. I argue that the real contribution of the paper is to show that European options can be replicated exactly if the future variability of the path of transaction prices is known. The continuous rebalancing and the probabilistic setting of the original paper mask this insight.

Suggested Citation

  • Anthony Neuberger, 2023. "The Black–Scholes paper: a personal perspective," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 46(2), pages 713-730, December.
    • Handle: RePEc:spr:decfin:v:46:y:2023:i:2:d:10.1007_s10203-023-00415-z
    DOI: 10.1007/s10203-023-00415-z
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    References listed on IDEAS

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    1. Mark Britten-Jones & Anthony Neuberger, 1996. "Arbitrage pricing with incomplete markets," Applied Mathematical Finance, Taylor & Francis Journals, vol. 3(4), pages 347-363.
    2. Bakshi, Gurdip & Cao, Charles & Chen, Zhiwu, 1997. "Empirical Performance of Alternative Option Pricing Models," Journal of Finance, American Finance Association, vol. 52(5), pages 2003-2049, December.
    3. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    5. Garman, Mark B. & Kohlhagen, Steven W., 1983. "Foreign currency option values," Journal of International Money and Finance, Elsevier, vol. 2(3), pages 231-237, December.
    6. Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-186, March.
    7. Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
    8. 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.
    9. Christensen, B. J. & Prabhala, N. R., 1998. "The relation between implied and realized volatility," Journal of Financial Economics, Elsevier, vol. 50(2), pages 125-150, November.
    10. Tom Arnold & Jimmy E. Hilliard & Adam Schwartz, 2007. "Short‐Maturity Options And Jump Memory," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 30(3), pages 437-454, September.
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