Myron Scholes, with Fischer Black, developed the Black-Scholes model and its option pricing equation. Their 1973 paper connects a contingent claim's value to the cost of a dynamically adjusted replicating portfolio, under explicit assumptions about trading and the underlying price process.[ref]
The Pricing of Options and Corporate Liabilities by Fischer Black and Myron Scholes. 1973, assumptions and derivation of the valuation equation
The mathematical insight is that a carefully chosen hedge can cancel the instantaneous random component of the claim's value. No-arbitrage then constrains the remaining locally riskless return, producing the Black-Scholes equation together with a final payoff condition. The result is a conditional conclusion within a model: it does not require an ability to predict the actual stock-price path.[ref]
The Pricing of Options and Corporate Liabilities by Fischer Black and Myron Scholes. Derivation of the differential equation and the boundary condition for a call
Institutional profile: www.gsb.stanford.edu/faculty-research/faculty/myron-s-scholes
Portrait of Myron Scholes
. Markus Prantl, via Wikimedia Commons; existing crop by JB Hoang Tam 2, CC BY-SA 3.0. Source..jpg){kind=link}
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