Nearly one year has elapsed since the first edition of this book came
into existence in early 1997. Within the past year, two significant events oc-
curred which are directly related to the derivatives profession. The first was
that on October 14, 1997, the Nobel committee gave the 1997 Nobel Prize
in Economic Sciences to Professor Robert Merton of Harvard University and
Professor Myron Scholes of Stanford University for their work on the devel-
opment of option pricing theory. The Nobel committee made it clear that
had he lived, Fischer Black would have shared the prize As described in
the first edition of this book, most of the models and pricing formulas in
this book have been within a Black-Scholes-Merton world which has been
central to the development of financial engineering as both a discipline and
profession.