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A Special Tribute
I would like to pay a special tribute to the following professors who helped influence my academic training.
Option pricing theory owes much of its development to the corporate warrants pricing model, first devised in 1967, by Prof. John Shelton. By pure luck, I enrolled in his security analysis course at UCLA Anderson Graduate School of Management in 1982. A decade earlier, the late Prof. Fischer Black and Prof. Myron Scholes of University of Chicago and MIT Sloan School of Management had extended Prof. Shelton's work on warrants pricing to options and popularized it by 1973. Their work, commonly known as the Black-Scholes Model, focused on valuation of stock option contracts for stocks paying no cash dividend and having European-style exercise feature.
By 1973, Prof. Edward Thorp of University of California at Irvine, the author of two bestsellers Beat the Dealer & Beat the Market, had derived & published extensions to the Black-Scholes Model, so stock option contracts of stocks paying a finite series of cash dividends and having an European-style exercise feature, can be priced. In 1991, I was indeed privileged to enroll in his very popular options & futures course at UCLA Anderson Graduate School of Management, where he was a visiting lecturer.
Still, the Black-Scholes Model lacked the ability to compute the theoretical value of a dividend-paying stock having an American-style early exercise feature. This shortcoming was successfully remedied in 1977 thru 1981 by three financial economists: Professors Robert Geske, Richard Roll & Robert Whaley. In 1994 and again in 1995, I was fortunate to be a student of Professors Geske & Roll at UCLA Anderson Graduate School of Management. Much of the work presented here is based on their published papers.
Additionally, I would like to credit Prof. Robert Whaley of Vanderbilt Owen Graduate School of Management, the developer of CBOE's VXO & VXN. Prof. Whaley created & published a protocol for deriving a uniform volatility index for any asset with liquid options, and generously shared that information with me.
Last but not the least, Prof. Burton Malkiel, Chairman of Economics Dept. at Princeton University, the world renowned author of the bestseller, A Random Walk Down Wall Street, encouraged me to study direct investments in broad market indices in my freshman year.
I have been blessed by their teachings, and indeed, it is my high honor and distinct privilege to have had my career shaped by these great financial pioneers.
Hamzei Analytics, LLC
Los Angeles, July 4th, 2002