Fischer Black (1938 - August 30, 1995) was an American economist, best known as one of the authors of the famous Black-Scholes equation. Jump to: navigation, search 1938 was a common year starting on Saturday (link will take you to calendar). ... Jump to: navigation, search August 30 is the 242nd day of the year in the Gregorian Calendar (243rd in leap years), with 123 days remaining. ... Jump to: navigation, search 1995 was a common year starting on Sunday of the Gregorian calendar. ... U.S. Economic Calendar Economics at the Open Directory Project Economics textbooks on Wikibooks The Economists Economics A-Z Institutions and organizations Bureau of Labor Statistics - from the American Labor Department Center for Economic and Policy Research (USA) National Bureau of Economic Research (USA) - Economics material from the organization... The Black-Scholes model, often simply called Black-Scholes, is a model of the varying price over time of financial instruments, and in particular stocks. ...

Black received a Ph.D. in Applied Math from Harvard University in 1964. In 1971 he 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. Doctor of Philosophy (Ph. ... Harvard University is a private university in Cambridge, Massachusetts, USA, and a member of the Ivy League. ... Jump to: navigation, search 1964 was a leap year starting on Wednesday (link will take you to calendar). ... Jump to: navigation, search 1971 is a common year starting on Friday (click for link to calendar). ... The University of Chicago is a private co-educational university located in Chicago, Illinois. ... The Sloan School of Management, one of the five schools of MIT, is one of the worlds leading business schools. ... Jump to: navigation, search 1984 is a leap year starting on Sunday of the Gregorian calendar. ... Jump to: navigation, search The Goldman Sachs Group, Inc. ...

Black began thinking seriously about monetary policy around 1970, and found at this time that the big debate in this field was between Keynesians and monetarists. The Keynesians (under the leadership, at that moment, of Franco Modigliani) believe there is a natural tendency of the credit markets toward instability, toward boom and bust, and they assign to both monetary and fiscal policy roles in dampening down this cycle, working toward the goal of smooth sustainable growth. In the Keynesian view, central bankers have to have discretionary powers to fulfill their role properly. Monetarists, under the leadership of Milton Friedman, believe that discretionary central banking is the problem, not the solution. Friedman believed that the growth of the money supply could and should be set at a constant rate, say 3% a year, to accommodate predictable population growth, and that the central bank should become a boring administrative sort of place. Keynesian economics, or Keynesianism, is an economic theory based on the ideas of John Maynard Keynes, as put forward in his book The General Theory of Employment, Interest and Money, published in 1936 in response to the Great Depression of the 1930s. ... Monetarism is a set of views concerning the determination of national income and monetary economics. ... Franco Modigliani (June 18, 1918 – September 25, 2003) was an Italian-American economist at the MIT Sloan School of Management, and winner of The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel in 1985. ... Fiscal Policy is the economic term which describes the behaviour of governments in raising money to fund current spending and investment for collective social purposes and for transfer payments to citizens and residents of the territory for which the government is responsible. ... Jump to: navigation, search Milton Friedman Milton Friedman (born July 31, 1912) is a U.S. economist, known primarily for his work on macroeconomics and for his advocacy of laissez-faire capitalism. ...

Where did Black come down on this argument? On the basis of the capital asset pricing model he concluded that discretionary monetary policy can't do the good Keynesians want it to do. But he also concluded that it can't do the harm monetarists fear it will do. The central bank is inefficacious, for good or ill. As Black put it in a letter to Friedman, in January 1972, "In the U.S. economy, much of the public debt is in the form of Treasury bills. Each week, some of these bills mature, and new bills are sold. If the Federal Reserve System tries to inject money into the private sector, the private sector will simply turn around and exchange its money for Treasury bills at the next auction. If the Federal Reserve withdraws money, the private sector will allow some of its Treasury bills to mature without replacing them." The capital asset pricing model (CAPM) is used in finance to determine a theoretically appropriate price of an asset such as a security. ...

So the central bank isn't the cause of, or the cure for, business cycles. But that then leads us into the question: what is the cause of the business cycle? To what conclusion did CAPM lead Black on this point?

Writing in March 1976, he proposed that human capital and business have "ups and downs that are largely unpredictable ... because of basic uncertainty about what people will want in the future and about what the economy will be able to produce in the future. If future tastes and technology were known, profits and wages would grow smoothly and surely over time." A boom, then, is a period when technology matches well with demand. A bust is a period of mis-match. This uncertainty is due to noise. Jump to: navigation, search Economic noise, or simply noise, describes a theory of pricing developed by Fischer Black. ...

This is how the two theories mesh. If Black is right about both issues, then during a boom, there will be plenty of room for an expansion of credit -- and the increase in the money supply. (Black was thus reversing the arrow of causality proposed by the monetarists.) During a bust, the decrease in price levels causes credit and the money supply to contract, via the mechanism suggested in that 1972 letter to Friedman. Jump to: navigation, search Money supply (monetary aggregates, money stock), a macroeconomic concept, is the quantity of money available within the economy to purchase goods, services, and securities. ...

In early 1994, Black was diagnosed with throat cancer. Surgery at first appeared successful, and Black was well enough to attend the annual meeting of the International Association of Financial Engineers that October, where he received their award as Financial Engineer of the Year. But the cancer returned, and Black died in August 1995. Jump to: navigation, search 1994 was a common year starting on Saturday of the Gregorian calendar, and was designated the International year of the Family. ... Head and neck cancers are malignant growths located in the oral cavity (mouth), nasal cavity, pharynx, larynx, thyroid, paranasal sinuses, salivary glands and lymph nodes of the upper neck. ... The International Association of Financial Engineers is a not-for-profit professional organization of Financial Engineers headquartered in NYC. It holds meetings to discuss various strategies in Financial_mathematics. ... October is the tenth month of the year in the Gregorian Calendar and one of seven Gregorian months with the length of 31 days. ... Jump to: navigation, search 1995 was a common year starting on Sunday of the Gregorian calendar. ...

He is also a co-author of the Black-Derman-Toy interest-rate derivatives model, which was developed for in-house use by Goldman Sachs in the 1980s but eventually published.

Selected bibliography

Literature on Fisher Black

• Fischer Black and the Revolutionary Idea of Finance, by Perry Mehrling, published by Wiley, August 2005, ISBN 0-471-45732-9

Perry Mehrling is professor of economics at Barnard College, Columbia University, in New York City. ... John Wiley & Sons, Inc. ...

Publications by Fisher Black

• Fischer Black & Myron Scholes, "The Pricing of Options and Corporate Liabilities", Journal of Political Economy (1973).

• Fischer Black, "Noise", Journal of Finance, vol. 41, pp. 529-543 (1986).

• F. Black, E. Derman, & W. Toy, "A One-Factor Model of Interest Rates and its Application to Treasury Bond Options", Financial Analyst Journal (1990).