1973, BIRTH OF A NEW SCIENCE: MODERN FINANCE
Finance was embedded with centuries of old craft, tradition, and practionnarie skill. Traders apprenticed under old-timer experts and passed skills through families and generations. Then the field transmogrified: Before our very eyes, a terrific revolution occurred! Though perhaps it took place unsung and among so many who were unknowing. Along with other changes impacting Finance, 1973 saw the advent of the Black-Scholes equation for pricing options. Life is not the same!
BLACK-SCHOLES
The equation achieves several things
- Unification and advance of a hundred years of development in fields such as stochastics, thermodynamics, and statistics applied to Finance. An advent at the epistemological foundation of human inquiry, as it changes the way we know and understand Finance.
- Definitive quantification in the field of Finance.
- "A revolution ... The first deductively rational and knowable way of setting a correct price for something ... our entire World was never the same ..." (Prof. Hindy, GSB Stanford University, 1995).
- Cohesive treatment between regular markets and derivative markets: Markets for profit and markets for risk protection, insurance, can be deductively decomposed into one another.
- Mathematization of promise-keeping, as an options contract is a form of promising. Options are one form that commitment takes. Thus, a mathematization of deontological, or obligation-oriented views of, rationality as well as a mathematization of regular economic efficiency.
- A point of departure for Finance's subsequent theoretical development, pricing models, new financial instruments, markets, and industries. Enabling new options in social choice.
MODERN FINANCE AND ARSHIYA VENTURES
Arshiya is inspired by the revolution in modern finance from several avenues.
- Finance is a special science, both highly stylized in advanced mathematical acumen and entering everyone's life at the most intimate and direct level.
- The special matter of funding delicate new initiative, Angel or Venture Finance, shares in the new understandings occasioned by Modern Finance. Derivatives contracts and Venture Finance both involve the rational coordination of intent and incentive among agents for future action. What is learned in Venture Finance and on LaSalle Street or Wacker Drive inform one another.
- Hence, for one real-life implication of theory, venture portfolios can sometimes include hedge fund investment and some do.
- Angel or Venture Finance and Hedge Funds are high-growth endeavors with leverage. Leverage capacity is substantial in both venture and hedge fund portfolios. Black-Scholes lets one appreciate why leverage capacity gets enlarged in high-growth areas of Finance. The appreciation one develops of leverage is formed from a mathematicized and rational perspective.
- Portfolio and wealth management, retirement, company stock and stock option plans, funding early-stage high-tech, hedge funds or managed futures alternative investment, and appraising gold prices, all parts of the vast landscape of Modern Finance, are impacted by the equation. A new science was born in 1973, to help us and for our care.
