Fischer Black developed the Black-Scholes model with Myron Scholes. Their 1973 analysis shows how continuous adjustment of a replicating portfolio can eliminate the local exposure to the underlying random price change, leading to a no-arbitrage equation for the value of a contingent claim.[ref]
The Pricing of Options and Corporate Liabilities by Fischer Black and Myron Scholes. 1973, assumptions and derivation of the valuation equation
This approach makes the hedge part of the mathematical explanation of the price. It also makes the assumptions visible: ideal continuous adjustment and the specified price dynamics are ingredients of the derivation, so changing the trading rules or dynamics can change the valuation problem. The Black-Scholes equation is therefore a useful starting point for studying both a tractable model and the effects of relaxing its assumptions.[ref]
The Pricing of Options and Corporate Liabilities by Fischer Black and Myron Scholes. Model assumptions, valuation equation and discussion of extensions
Robert Litterman and Fischer Black in 1994
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