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Exploiting the world of differences

The economist Fischer Black hardly had a promising start to his academic career. He switched his PhD from physics to mathematics. When he tried flip-flopping again, this time from computing to artificial intelligence, Harvard lost patience and asked him to leave. His eventual doctorate in applied maths helped land him a role at the Massachusetts Institute of Technology, where he met Myron Scholes, whose doctorate was in economics. Until an operation had removed scar tissue from both his corneas, Scholes’s reading had been limited to short bursts, and during 10 difficult years, he’d trained himself both to listen and to solve problems through abstract thinking. Fusing that with Black’s silo-breaking intellect enabled the two to come up with a revolutionary equation. But there was a problem: it was too obscure. Nobody would publish it. 

Robert C Merton, an economist at MIT, shared their fascination with numbers, and he began playing around with the formula. What’s more, he found a publisher. All their work could easily have been attributed to him. But Merton wasn’t like that. He insisted that Black and Scholes publish first, and so the model that could have gone down in history as the Merton formula instead became known as Black-Scholes. 

Like so much of pure maths, its practical use was not immediately obvious.

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