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About 2012
Last revised: January 10, 2013

Nightmare on  Wall Street, Main Street, and Pennsvylania Avenue

Like Martin Luther King, we have a dream, but let's begin with the "nightmare" (really, an unpleasant daydream):

The president of an investment bank, the president of the U.S. Senate, and the president of a healthcare insurance company, are sitting in the back row of an auditorium, attending a conference about RewardandRisk in America. The master of ceremonies says, "A recent survey of financial experts indicates that the three biggest sources of risk for America's banking, government, and healthcare sectors are ignorance, indifference, and indolence."

The banker turns to his neighbor and whispers, "What are ignorance, indifference, and indolence?"

The neighbor laughs loudly, grins in a scary way, and says, "I don't know, I don't care, and I wish I didn't have to waste my time sitting here, while that bozo yammers."

The insurer brightens and says to the other two, "Want to play a round of golf at my country club in Bermuda?"

The president of the Senate says, "Can my boss join us? ... He has a great private jet, and he'd fly us there for free."

The mission of    

The mission of is fight ignorance, indifference, and indolence about RewardandRisk by publishing informative, engaging, operational opinion about the significant, inescapable RewardandRisk that everyone faces, as well as ways to analyze and manage it. In other words, we aim to publish news and opinions that entice our readers to recognize the RewardandRisk in their lives, learn more about it, and make informed judgements about the value of analyzing and managing it.

about the William Margrabe group, inc.


The William Margrabe Group, Inc. ("WMG, Inc."; "the Group"), a consulting firm, provides clients with high-quality consulting services related to financial models (mainly valuation models and risk management models) that large financial firms use to better understand and manage their RewardandRisk.

We have extensive experience with all aspects of financial models, from creation to application, helping end-users:

  • determine which models best satisfy their business requirements,
  • select efficient algorithms for doing required calculations,
  • produce source code to implement the algorithms,
  • document and evaluate the models, algorithms, code, and implement applications to meet requirements of managers, internal and external auditors, and regulators, and 
  • educate users--including traders, financial controllers, operational controllers, auditors, and regulators--about the models underlying applications that produce reports that they use.

We have built, documented, and evaluated models for valuing a wide range of contracts, including

  • forward rate agreements, interest rate swaps, swaptions;
  • European, Bermudan, American, and Asian call and put options;
  • Margrabe options, exchange options, spark spreads, options on the maximum or minimum of a set of prices, convertible bonds, and other rainbow options;
  • Asian options, barrier (knock-in, knock-out) options, and other exotic options;
  • embedded options, structured products, etc.;
  • pensions;

The underlying sources of risk for these models included

  • money market instruments, notes, and bonds;
  • precious metals, crude petroleum and refined products, natural gas, and other commodities; 
  • currencies;
  • temperatures; and
  • shares.

The indexes for the derivative contracts included

  • spot, forward, and futures prices and exchange rates;
  • bond and note prices and yields;
  • averages over time; portfolio prices; indexes, and spreads;
  • degree-days; and
  • mortality rates.

About William Margrabe's Education

B.A., Econ (Johns Hopkins University)

William Margrabe earned his B.A. (Econ., ΦΒΚ, general honors) from the Johns Hopkins University. A high point of his sophomore year was second semester, when he took undergraduate intermediate macroeconomics and graduate introductory macroeconomics, simultaneously, earning A's in each. Hopkins was and is an outstanding institution, with an outstanding economics department.

Margrabe studied economics for his entire senior year at the University of Essex, in the U.K. The economics department was outstanding and the senior faculty were generous in their support of a student who was far from home. At the time the B.A. was the standard terminal degree for economics faculty in the U.K., but Essex had faculty with Ph.D.s from Chicago, Princeton, and other distinguished departments.

Ph.D., Econ (University of Chicago)

William Margrabe was earning his Ph.D. in economics from the University of Chicago, the first hurdle was passing the "Core" exam, which had two parts: price theory (microeconomics) and monetary economics (macroeconomics). When he passed the "Core", the pass rate was about one-third. Price theory is a large part of the foundation of economic theory, which is the foundation for financial theory. The entering class was about sixty, and about sixteen earned Ph.D.s from Chicago.

Margrabe's main fields of specialization were finance (in the business school) and economic development (economics department). Finance advanced the theory of the firm by investigating the implications of maximizing firm wealth in an uncertain world. Professor Fama introduced the theory of investment, using the rigorous textbook, The Theory of Finance, that he and Nobel Prize winner, Merton Miller, had published in 1971. Fama's courses covered, in detail, (a) the theory of investment, of which capital budgeting and benefit-cost analysis are applications, (b) portfolio theory, and (c) the "CAPM". The Fama-Miller seminar or workshop in finance provided an opportunity to see at an early stage some of the best research at the time.

Margrabe was Fischer Black's research assistant for his consulting firm, Associates in Finance, and his academic research. He was also Black's teaching assistant. Working for Black was a privilege.

Economic development was applied microeconomics, macroeconomics, and benefit-cost analysis. The professors (Arnold Harberger, D. Gale Johnson, Larry Sjaastad, ) who taught the  development courses he took had made significant theoretical contributions, had extensive experience in the field, or both. 

The Wharton School

Margrabe's first academic job outside Chicago was in the finance department at Wharton. In addition to the obvious advantages that attended that appointment, it provided an opportunity to attend and take seriously Stephen Ross's Ph.D. seminars in financial theory.

University of Pittsburgh

Margrabe attended regularly the multivariate statistics courses that C.R. Rao and P.K. Krishnaiah offered (and studied the material seriously). Also, Rao's undergraduate statistics course was amazingly engrossing. Neil Timm's multivariate statistics textbook is memorable for its comprehensiveness and clarity.

George Washington University

After Margrabe attended (with the usual intensity) Professor Hugo Junghenn's course on measure theory, that abstruse subject began to make sense.