William & Mary

Byler and Tarter

Daniel BylerWilliam and Mary alumnus Daniel Byler and his Applied Financial Derivatives professor, M. Sean Tarter, will be speaking at the 70th annual International Atlantic Economic Association meeting, presenting a paper they have coauthored together. Their paper, entitled, "The Pivotal Roles of Supply and Demand in Option-Pricing: The Reality Beyond Black-Scholes," breaks new ground in derivatives pricing theory by untangling a challenging phenomenon -- known as 'the Identification Problem' -- that has plagued finance researchers over the past century and may lie at the heart of the debate over the Efficient Market Hypothesis, as well as a longstanding empirical puzzle termed 'the implied volatility smile.'

Their work shows how much of existing theory is, in fact, a very fractured structure. However, by integrating this existing theory with a new heterogeneous-agent model and their unprecedented approach to solving the identification problem, they have achieved significant new ground in making the theory sound and at last consistent. Their paper has established the statistical significance and predictive value of their model, but they have also gone further and been able to prove that derivatives markets are not the 'zero-sum game' many presuppose. In fact, their heterogeneous-agent approach shows that these markets, presently under close regulatory scrutiny, provide a vital service and have significant positive economic value.

"William and Mary is one of the few places where this kind of collaboration could happen," noted Tarter, citing the caliber of the student population and the many ways in which the administration, departments, and College culture encourage faculty-student collaboration on very high-level research. Their approach, which began with some ideas that professor Tarter had developed earlier in his career, flourished in this collaborative environment. Moreover, their results come at a time when careful formulation of public policy in this regard is desperately needed, and after the crises of recent years, almost everyone everywhere now knows that the stakes for world markets and their inhabitants simply could not be higher.

"Not only was William and Mary the kind of unique setting that made this sort of result possible," noted Tarter, "but Daniel Byler is one of the greatest students any professor could ask for, as well as one of the greatest collaborators any researcher could hope for."

"I would explain extremely complex ideas to Daniel, and he was able to rapidly absorb them and then respond in kind, creating a powerful chain reaction that resulted in work that we both sincerely hope will positively impact our understanding of markets and indirectly -- but unquestionably -- help improve the lives of the peoples of our world. Moreover, Daniel's work ethic, discipline, and contagious love of learning made the joy of discovery an even more wonderful experience."

Sean TarterTarter, who suffers from a severe disability, found a friend in Byler, who was often able to carry their ideas where he physically could not. "I could scarcely have asked for more in a true collaborator and friend than Daniel Byler has provided," Tarter explained. "Daniel embodies not only the archetype of the brilliant mind, but also the heart of service and compassion that every parent hopes to see in their children and that universities like William and Mary aspire to produce. From spending countless hours pouring over data sets to driving his professor to teach classes and assisting him physically when no other assistance was available, Daniel has consistently proven himself a faithful collaborator and friend."

When Byler was asked to describe his collaborative work with Tarter, he revealed a picture of a professor whose passion for his subject and relentless pursuit of higher learning are nearly impossible to find. "Sean's commitment to his students and love of his subject go beyond even the highest standards to which one could hold a professor. Perhaps the best example of this is the periodic optional Friday night lectures he sometimes gives when even remotely physically able. Every once in a while, he lectures on a specific topic that will start at 9 PM and he will teach until he cannot teach anymore because of his condition. These optional lectures, that provide no class credit, are so inspirational that even people who are not in the class will eagerly attend them, instead of partaking in the usual Friday night festivities associated with college. Sean's inspirational and infectious personality has awakened a love of learning in many students and regularly alters the entire life plan of students who take his class."

Byler continued, "His passion for his subject and immense intellect made him a demanding and excellent research partner. Every time I gained mastery of a subject, Sean was pushing me to new heights that I never thought were possible to attain as an undergraduate. Every time we had a brainstorming session, the results were tremendous and rewarding. Despite extremely difficult personal circumstances, Sean has impacted me as few in my life have done. To be frank, many people in Sean's position might have given up entirely, but Sean has chosen a life whose meaning will be multiplied over a hundred fold by the students he has touched during his tenure at William and Mary."

Overall, both men agree on one thing, William and Mary is a rare institution and the Economics department's commitment to small class sizes, taught by professors with expertise in the material, yields results. Byler said, "I know a number of people at other elite institutions around the country and I have never heard of a research experience that comes close to this. My work with Sean spanned over a year and a half after I took my last class with him, but that didn't matter to him. To him, the culture of learning and commitment to truth that were instilled in him as a graduate and professor of the College of William and Mary made the fact that I wasn't even in one of his classes a mere footnote in our long-term research relationship."

When asked if they had any other research discoveries on the horizon, Tarter smiled and replied, "I would certainly expect to see more papers with the names Byler and Tarter in this field and possibly other fields in the coming years. And we will certainly let you know when we're ready to release more discoveries."