Merton, Robert (1944-)

BOSTON -- Robert C. Merton, 53, the George Fisher Baker Professor of Business Administration at Harvard Business School and a renowned expert in finance and economics whose work has changed the foundation of economic theory and asset pricing, has won the 1997 Nobel Memorial Prize in Economic Sciences, the Royal Swedish Academy of Sciences announced today. He shares the prize with Professor Myron S. Scholes of Stanford University. According to the Royal Swedish Academy, Merton and Scholes "have, in collaboration with the late Fischer Black, developed a pioneering formula for the valuation of stock options. Their methodology has paved the way for economic valuations in many areas. It has also generated new types of financial instruments and facilitated more efficient risk management in society." The prize carries with it a cash award of $1 million. Along with the other 1997 Nobel Laureates, Merton will formally receive the prize in Stockholm in December. Since 1914, he is the thirty-fifth Harvard University faculty member to have been recognized with a Nobel Prize in the sciences, economics, and peace. "We are enormously proud that Bob Merton has received this honor," said Harvard Business School Dean Kim B. Clark. "He is a highly valued member of our faculty who has made and continues to make fundamental contributions to finance and economics. His work not only wields remarkable influence in modern financial theory, but also has important implications for the character and performance of the global financial system. Bob's is a voice of leadership that speaks at once to the academy and the world of practice." Merton's research focuses on developing finance theory in the areas of capital markets and finance institutions. He has written extensively on intertemporal portfolio choice, capital asset pricing, the pricing of options, risky corporate debt, loan guarantees, and other complex derivative securities. He has also written on the operation and regulation of financial institutions, including issues of capital budgeting, production, hedging, and risk management. Merton's most recent book, Continuous-Time Finance (Basil Blackwell, Inc.) appeared in 1990, with a revised edition issued in 1992. He is coauthor of Casebook in Financial Engineering: Applied Studies of Financial Innovation (Prentice-Hall 1995) and The Global Financial System: A Functional Perspective (Harvard Business School Press 1995). According to Andre F. Perold, the School's Sylvan C. Coleman Professor of Financial Management and chairman of its Finance Unit, "Bob Merton has pioneered the use of sophisticated 'stochastic calculus' for pricing financial instruments and determining optimal dynamic investment strategies. He also has applied this technology toward understanding broad aspects of the financial system, such as household consumption, the creation of financial products by intermediaries, and the management and regulation of financial institutions. The influence of Merton's pathbreaking work is hard to understate," Perold continued. "The mathematical foundations, for example, underlie the Black-Scholes-Merton option pricing model and virtually all security pricing models in use today. Techniques for valuing companies, particularly those with complex investment opportunities, are direct applications of his theories. More recently, Merton's interests have included development of a functional framework for understanding the status and future evolution of the global financial system. His intellectual leadership has had a major impact on the work of colleagues within academia and throughout the financial services sector." Said Carliss Y. Baldwin, the William L. White Professor of Business Administration at the School, "Merton's methods have been applied to an enormously wide range of economic problems, ranging from pure theory to the very practical design of new financial securities. His generalization of Black and Scholes' valuation method made it possible to customize financial claims to suit the preferences of buyer and seller alike, and to price those derivative claims directly. Thus Merton's theories are the analytical underpinning of the huge, global market for derivative securities, which has grown so dramatically over the last decade. Few economists," Baldwin added, "have contributed theories of such breadth and beauty; fewer still have seen their ideas put to such immediate practical use. Like Paul Samuelson, Bob Merton has changed the foundations on which the science of economics is built." Merton joined the Harvard Business School faculty in 1988. From 1970 to 1988, he was a professor in the finance area of MIT's Sloan School of Management. He earned a Ph.D. in economics from MIT in 1970 and an M.S. in applied mathematics from the California Institute of Technology in 1967. He received a bachelor's degree in engineering mathematics from Columbia University in 1966. Merton served as president of the American Finance Association in 1986 and as a director of the Association from 1982 to 1984 and from 1987 to 1988. He received the Distinguished Scholar Award from the Eastern Finance Association in 1989 and the Leo Melamed Prize from the University of Chicago in 1983. He was twice awarded first prize by the Institute of Quantitative Research in Finance in its Roger Murray Prize Competition and received the 1993 International INA-Accademia Nazionale dei Lincei Prize from the National Academy of Lincei in Rome. In 1993, he also received the FORCE Award for Financial Innovation from Duke University and the Financial Engineer of the Year Award from the International Association of Financial Engineers. Merton is a Fellow of both the American Academy of Arts and Sciences and the Econometric Society and is a Senior Fellow of the International Association of Financial Engineers. He was elected a member of the National Academy of Sciences in 1993. In 1991, Merton received an honorary Doctor of Laws (LL.D.) from the University of Chicago, in 1995 the degree of Professeur Honoris Causa from Hautes Etudes Commerciales (France), in 1996 the degree of Doctor Honoris Causa from the University of Lausanne, and in 1997 an honorary doctorate from University Paris Dauphine. He also holds an honorary M.A. from Harvard University (1989). Merton is a Research Associate of the National Bureau of Economic Research. He is a principal and one of the founders of Long-Term Capital Management, L.P., a financial technology and proprietary trading firm. He is a member of the International Board of Scientific Advisers of the Tinbergen Institute and serves on the advisory board of the Center for Global Management and Research at George Washington University. Merton is on the advisory and editorial boards of Review of Derivatives Research, Mathematical Finance, Finance India, Financial Review, Journal of Fixed Income, Geneva Papers on Risk and Insurance, Journal of Banking and Finance, Journal of Financial Education, Nikon Finance Gakkai, European Finance Review, International Journal of Theoretical & Applied Finance, and The Brookings-Wharton Paper on Financial Policy.