Mark E. Rubinstein, professor emeritus of finance at the Haas School of Business at University of California, Berkeley, has died. He was 74.
Mr. Rubinstein, who died May 9, retired in 2012 after nearly 40 years as a faculty member at UC Berkeley. He was best known for his pioneering work applying mathematical tools to financial pricing as well as for his contributions in options pricing, his development of the first exchange-traded fund and the development of risk-hedging algorithm called "portfolio insurance," according to a Haas School news release.
In the 1980s, Mr. Rubinstein and Haas School colleagues Hayne Leland and John O'Brien developed portfolio insurance at their firm, Leland O'Brien Rubinstein. The algorithm required selling off assets when the market declined and was accused of being a large cause of the October 1987 stock market crash. The firm then in 1992 developed the first ETF, the SuperTrust, an S&P 500-based fund that traded as a single security. According to the news release, Mr. Rubinstein and Mr. Leland persuaded the SEC to give the first exemption to 1940 Investment Act rules that prevented ETFs.
"Mark made many significant contributions to the theory and practice of quantitative finance," said Bruce I. Jacobs, principal at Jacobs Levy Equity Management, in an email. "Mark's work with John Cox and Stephen Ross on the binomial option pricing model provided investors and traders with an important new tool for valuing options. The binomial pricing model is more intuitive, more visual, than alternatives such as the Black-Scholes-Merton pricing model."
"I owe Mark a debt for piquing my own interest in market stability and, in particular, the interaction of financial innovations (such as portfolio insurance) and market prices," Mr. Jacobs said. "It turns out there are commonalities between the 1987 crash and subsequent episodes of market instability, including the 2007-2008 credit crisis and the role of structured finance products like collateralized debt obligations."
Mr. Rubinstein is survived by his wife, Diane, and his children, Judd and Maisie. A memorial service will be held at 1:30 p.m. on June 9 at Fernwood Mortuary, 301 Tennessee Valley Rd., Mill Valley, Calif.