Fischer Black, famed for his collaborative work in developing the Black-Scholes option price model, one of the most powerful valuation theories for modern finance that spurred the widespread growth of derivatives, died Aug. 30.
Aside from the significant options pricing model that made him world famous, Mr. Black might have done the most to extend the use of the capital asset pricing model, from spurring international investment diversification and currency management to portfolio insurance and asset allocation.
Mr. Black, who was a partner with Goldman Sachs & Co., New York, since 1984, died at his home in New Canaan, Conn., after a yearlong fight with throat cancer.
"Fischer was probably one of no more than a half-dozen people whose papers have done the most for the world of modern finance in terms" of academics and application, said Gary L. Gastineau, senior vice president, American Stock Exchange.
"He made the theory and practice of finance much better integrated than they would be without him."
The options pricing model, which Mr. Black developed with Myron Scholes and Robert C. Merton, "showed options fall on the capital market line with every other investment," he said.
"Thus it showed you could value options as an extension of the capital asset pricing model in a similar way you can evaluate other investments. It provided a way for people who hadn't thought about options a lot to also value other forms of investments that had eluded them."
Messrs. Black and Scholes published their theory and empirical testing of the options pricing model in academic journals in 1972 and 1973.
Among other areas, Mr. Black "extended the capital asset pricing model to international investing," including diversification and currencies, Mr. Gastineau said.
Mr. Black, along with Bruno Skolnik, a European academic, helped in the 1960s to "popularize the idea of international diversification" and benefits to investors. In doing so, he extended the concept of portfolio investment diversification, developed by Harry Markowitz in the early 1950s.
In the 1980s, Mr. Black developed - simultaneously with Andre Perold, a professor at Harvard University, who was working independently - an improvement of portfolio insurance, known as constant proportion portfolio insurance. His work was more consistent with CAPM and "more consistent with the way people view risk," Mr. Gastineau said. His model also suggested "a way of doing portfolio insurance in a less destabilizing manner in the market than portfolio insurance was accused of being."
