Black and Scholes succeeded where Samuelson hesitated by accepting instantaneous rebalancing

Evidence

“What got Black, Scholes and Merton there,” Samuelson recalled in 2000, “was their courage to take a final step that I was squeamish about: namely, I was loathe to accept the idealization of truly instantaneous rebalancings; always, I insisted, for finite time intervals, however small, no perfect hedge was possible.” — Donald MacKenzie, An Engine, Not a Camera, 612

Categorization

• CANDY: A confessional retrospective: the guy who got closest admits intellectual squeamishness cost him the discovery.
• QUESTION: Worth chasing: does the instantaneous-rebalancing idealization matter for why the model became performative in practice, since real hedging is discrete?
• XREF: connects to: Black and Scholes initially rejected Merton’s continuous-trading assumption. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 601; Black and Scholes succeeded by proving their formula solved a theoretically justified differential equation — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 584

Broader Connections

• Black and Scholes succeeded by proving their formula solved a theoretically justified differential equation #expands (0.85) — Donald MacKenzie, An Engine, Not a Camera, 584