Thorp independently derived a formula equivalent to Black-Scholes minus discounting.

Evidence

Thorp’s expression for the value of a warrant or call option was formally equivalent to that of Fischer Black and Myron Scholes (equation 2 in appendix D), except for one feature: unlike Black and Scholes, Thorp did not discount the expected value of the option at expiration back to the present. (In other words, his value for the option price did not take into account the fact that the seller of an option could earn interest on the proceeds of its sale.) — Donald MacKenzie, An Engine, Not a Camera, 558

Categorization

• DEFINE: The paragraph defines the discount factor in option pricing — the point that the seller could earn interest on sale proceeds.
• XREF: connects to: Black and Scholes priced options via CAPM while Thorp sought arbitrage without it — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 141; Deriving the Black-Scholes equation required invoking CAPM’s riskless-rate logic. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 581; The arbitrage argument produces the Black-Scholes partial differential equation. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 95

Broader Connections

• Black and Scholes priced options via CAPM while Thorp sought arbitrage without it #qualifies (0.85) — Donald MacKenzie, An Engine, Not a Camera, 141
• The arbitrage argument produces the Black-Scholes partial differential equation. #corroborates (0.82) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 95
• Deriving the Black-Scholes equation required invoking CAPM’s riskless-rate logic. #corroborates (0.72) — Donald MacKenzie, An Engine, Not a Camera, 581