This mathematical approach to investing led to the famed Capital Asset Pricing Model by Sharpe, Lintner, and Black, the Option Pricing Model by Black and Scholes, and other important theories.

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The idea that significant arbitrage opportunities are unlikely to exist (and certainly do not persist) is precisely the mechanism behind the Black-Scholes option-pricing model that Mr. Derman admires as a financial model behaving pretty well.

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