The Rise of the Quants: Marschak, Sharpe, Black, Scholes, by Colin Read (auth.)

By Colin Read (auth.)

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Sample text

Certainly, higher order terms beyond the first and second moments on both the finance side and the utility side can be important in some circumstances. However, the mean and variance is relevant in all circumstances. Marschak the mentor inspired students and colleagues alike to stretch this methodology as far as possible. For instance, we can use the technique to drive a measure of risk aversion among investors. To see this, let us determine a measure of the cost of risk. Let us denote this risk penalty as p.

Her Sharpe family dated back into early America even further. The original Sharpes and Jillsons had both eked out a pioneer existence in the southern Massachusetts and Rhode Island region for the first centuries of the New World, with ancestors dating back to the time of the Pilgrims’ arrival on the Mayflower and its sister ships. Almost three centuries later, William Forsyth Sharpe’s mother, Evelyn Forsyth Jillson, was from a family well established in Rhode Island, with sufficient resources to send their daughter to Brown University’s women’s college in the early 1920s.

The great insights of William Forsyth Sharpe, John Lintner, Jan Mossin, and Jack Treynor forever ratcheted up the degree of analytic rigor now commonly employed in finance. They also heralded in the era of the quants. While these four scholars arrived at a similar conclusion at about the same time, the intellectual landscape had been in the making for a decade. Finance scholars were well aware of Markowitz’s innovative Modern Portfolio Theory in the early 1950s. However, his formalization of historic variability and its influence on returns required advances in computing power that was sufficiently rapid to enable the myriad calculations that would turn theory into practice.

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