Great Moments in Financial Economics: IV. The Fundamental Theorem (Part II)
Volume 4, Number 1, First Quarter 2006
This is Part II of the fourth in a series of articles in this Journal examining the historical origins of key ideas in the history of financial economics. It describes an extension of the “fundamental theorem” from buy-and-hold strategies developed in Part I to dynamic portfolio strategies. Part II presumes the reader is familiar with Part I. The extension can be traced back to work by Blaise Pascal and Pierre de Fermat in the 17th century, with a subsequent path in the 20th century that leads to modern option pricing theory.