Historical context for the Black-Scholes-Merton option pricing model

Although we won’t get into the “gory” details on the famous Black-Scholes-Merton option pricing model until sometime in November  when we cover Hull’s chapter entitled “The Black-Scholes-Merton Model” and my teaching note entitled “Derivation and Comparative Statics of the Black-Scholes Call and Put Option Pricing Equations“, I’d like to call your attention to the fact that the original papers by Black-Scholes and Merton are available on the web:

The Black-Scholes paper originally appeared in the Journal of Political Economy (Vol. 81, No. 3 (May – Jun., 1973), pp. 637-654). The Merton paper appeared at around the same time in The Bell Journal of Economics and Management Science (now called The Rand Journal). Coincidentally, the publication dates for these articles on pricing options roughly coincide with the founding of the Chicago Board Options Exchange, which was the first marketplace established for the purpose of trading listed options.

Apparently neither Black and Scholes nor Merton ever gave serious consideration to publishing their famous option pricing articles in a finance journal, instead choosing two top economics journals; specifically, the Journal of Political Economy and The Bell Journal of Economics and Management Science. Mehrling (2005) notes that Black and Scholes:

“… could have tried finance journals, but the kind of finance they were doing was outside the rubric of finance as it was then organized. There was a reason for the economist’s low opinion of finance, and that reason was the low analytical level of most of the work being done in the field. Finance was at that time substantially a descriptive field, involved mainly with recording the range of real-world practice and summarizing it in rules of thumb rather than analytical principles and models.”

Another interesting anecdote about Black-Scholes is the difficulty that they experienced in getting their paper published in the first place. Devlin (1997) notes: “So revolutionary was the very idea that you could use mathematics to price derivatives that initially Black and Scholes had difficulty publishing their work. When they first tried in 1970, Chicago University’s Journal of Political Economy and Harvard’s Review of Economics and Statistics both rejected the paper without even bothering to have it refereed. It was only in 1973, after some influential members of the Chicago faculty put pressure on the journal editors, that the Journal of Political Economy published the paper.”


Devlin, K., 1997, “A Nobel Formula”.

Mehrling, P., 2005, Fischer Black and the Revolutionary Idea of Finance (Hoboken, NJ: John Wiley & Sons, Inc.).

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