Robert C. Merton

Robert Cox Merton (born July 31, 1944) is an American economist, Nobel Memorial Prize in Economic Sciences laureate, and professor at the MIT Sloan School of Management, known for his pioneering contributions to continuous-time finance, especially the first continuous-time option pricing model, the Black–Scholes–Merton model. In 1993 Merton co-founded hedge fund Long-Term Capital Management.

This article is about the economist. For the sociologist, see Robert K. Merton.

Robert C. Merton
Merton in 2010
Born (1944-07-31) July 31, 1944
New York City, New York, U.S.
NationalityAmerican
Alma materColumbia University
California Institute of Technology
Massachusetts Institute of Technology
Known forBlack–Scholes–Merton model
ICAPM
Merton's portfolio problem
Merton model
Fractional Finance
Long-Term Capital Management
AwardsNobel Memorial Prize in Economic Sciences (1997)
Scientific career
FieldsFinance, economics
InstitutionsMassachusetts Institute of Technology Harvard University
Doctoral advisorPaul Samuelson
Doctoral studentsJonathan E. Ingersoll[1]
Robert Jarrow

In 1997 Merton Together with Myron Scholes were awarded the Nobel Memorial Prize in Economic Sciences for a method to determine the value of derivatives.

Merton's current research focus is on the topics of: lifecycle investing and retirement funding solutions, measuring and monitoring systemic risks in macrofinance, and financial innovation coupled with changing dynamics in financial institutions. [2]

Biography

Merton was born in New York City to a Jewish father[3] sociologist Robert K. Merton and mother Suzanne Carhart who was from a "multigenerational southern New Jersey Methodist/Quaker family."[4] He grew up in Hastings-on-Hudson, NY. He earned a Bachelor of Science in Engineering Mathematics from the School of Engineering and Applied Science of Columbia University, a Masters of Science from the California Institute of Technology, and his doctorate in economics from the Massachusetts Institute of Technology in 1970 under the guidance of Paul Anthony Samuelson. He then joined the faculty of the MIT Sloan School of Management, where he taught until 1988.[5] Subsequently, Merton moved to Harvard University, where he was George Fisher Baker Professor of Business Administration from 1988 to 1998. He was the John and Natty McArthur University Professor from 1998-2010. He rejoined the MIT Sloan School of Management in 2010 when he went Emeritus.

Career

Robert C. Merton is the School of Management Distinguished Professor of Finance at the MIT Sloan School of Management. He is Resident Scientist at Dimensional Fund Advisors, where he developed a next-generation integrated pension-management solution system that addresses deficiencies associated with traditional defined-benefit and defined-contribution plans. Merton is University Professor Emeritus at Harvard University. He was the George Fisher Baker Professor of Business Administration (1988–98) and John and Natty McArthur University Professor (1998–2010) at the Harvard Business School. He previously served on the finance faculty of the Sloan School from 1970 until 1988. Merton received the Alfred Nobel Memorial Prize in Economic Sciences in 1997 for a new methodology to value derivatives. He is past President of the American Finance Association, a member of the National Academy of Sciences and a fellow of the American Academy of Arts and Sciences. He holds honorary degrees from eighteen universities.

Merton’s research focuses on finance theory including lifecycle finance, optimal intertemporal portfolio selection, capital asset pricing, 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. Merton’s current academic interests include financial innovation and dynamics of institutional change, controlling the propagation of macro financial risk, and improving methods of measuring and managing sovereign risk. He is the author of Continuous-Time Finance, and a co-author of Cases in Financial Engineering: Applied Studies of Financial Innovation and The Global Financial System: A Functional Perspective; Finance; and Financial Economics.

Merton has also been recognized for translating finance science into practice. He received the inaugural Financial Engineer of the Year Award from the International Association of Financial Engineers in 1993,[6] which also elected him a senior fellow. Derivatives Strategy magazine named him to its Derivatives Hall of Fame as did Risk magazine to its Risk Hall of Fame. He also received Risk’s Lifetime Achievement Award for contributions to the field of risk management. A distinguished fellow of the Institute for Quantitative Research in Finance ('Q Group') and a fellow of the Financial Management Association, Merton received the Nicholas Molodovsky Award from the CFA Institute.

His first professional association with a hedge fund came in 1968. His advisor at the time, Paul Samuelson, brought him on board Arbitrage Management Company (AMC), to join founder Michael Goodkin and chief executive Harry Markowitz. AMC is the first known attempt at computerized arbitrage trading. After a successful run as a private hedge fund, AMC was sold to Stuart & Co. in 1971.[7] In 1993, Merton co-founded a hedge fund, Long-Term Capital Management, which earned high returns for four years but later lost $4.6 billion in 1998 and was bailed out by a consortium of banks and closed out in early 2000.[8]

Personal life

Merton married June Rose in 1966. They separated in 1996. They have three children: two sons and one daughter.

Honours and awards
  • In 1986, Merton became a Fellow at the American Academy of Arts and Sciences.[9]
  • In 1986, Merton was President of the American Finance Association.[10]
  • In 1993, Merton became a member of the U.S. United States National Academy of Sciences.
  • In 1993, Merton was awarded the International INA - Accademia Nazionale dei Lincei Prize, National Academy of Lincei, Rome.[4]
  • In 1993, Merton won the Financial Engineer of the Year Award by the International Association of Financial Engineers.[11]
  • In 1994, Merton became of Senior Fellow at the International Association of Financial Engineers.
  • In 1997, Merton became a Distinguished Fellow at the Institute for Quantitative Research in Finance ('Q Group').[4]
  • In 1997, Merton was awarded the Nobel Memorial Prize in Economic Sciences with Myron Scholes for their work on stock options.[12]
  • In 1998, Merton was awarded the Michael I. Pupin Medal for Service to the Nation from Columbia University.[13]
  • In 1999, Merton was awarded a lifetime achievement award in mathematical finance.[14]
  • In 2000, Merton became a FMA Fellow at the Financial Management Association.[15]
  • In 2000, Merton became a Fellow at the Society of Fellows, American Finance Association.[16]
  • In 2005 the Baker Library at Harvard University opened The Merton Exhibit in his honor.[17]
  • In 2009, Merton was awarded the Robert A. Muh Award in the Humanities, Arts and Social Sciences from Massachusetts Institute of Technology.[18]
  • In 2009, Merton was awarded the Tjalling C. Koopmans Asset Award from Tilburg University.[19]
  • In 2010, Merton received the Kolmogorov medal from the University of London.[20]
  • In 2010, Merton received the Hamilton Medal from the Royal Irish Academy.[21]
  • In 2011, Merton received the CME Group Melamed-Arditti Innovation Award.[22]
  • In 2013, Merton received the WFE Award for Excellence from the World Federation of Exchanges.[23]
  • In 2014, Merton received the Lifetime Achievement Award from the Financial Intermediation Research Society.[24]
  • In 2017, Merton received the Finance Diamond Price from the Fundacion de Investigacion IMEF, Mexico.[25]

Publications
  • Theory of rational option pricing (1973)

See also

References
  1. Ingersoll, Jonathan E. (1976), A contingent-claims valuation of convertible bonds and the optimal policies for call and conversion. Ph.D. dissertation, Massachusetts Institute of Technology.
  2. https://mitsloan.mit.edu/faculty/directory/robert-c-merton
  3. Florida Atlantic University Libraries: "American Jewish Recipients of the Nobel Prize" Archived April 2, 2015, at the Wayback Machine retrieved March 29, 2015
  4. Robert C. Merton on Nobelprize.org , accessed 11 October 2020
  5. Faculty research Department (2008). "Biography – Robert C. Merton". Harvard Business School. Archived from the original on June 8, 2007. Retrieved August 30, 2008.
  6. Hittleman, Margo (August 19, 1997). "Robert Jarrow is cited as one of the world's leading finance theorists". Cornell Chronicle. Retrieved February 5, 2018. Past recipients of the Financial Engineer of the Year award include Robert Merton (Harvard), Fischer Black, Mark Rubinstein (Berkeley) and Stephen Ross (Yale).
  7. Goodkin, Michael. The Wrong Answer Faster: The Inside Story of Making the Machine that Trades Trillions. John Wiley & Sons, 2012
  8. Sears, Steven (July 8, 2017). "A Good Time for Caution in the Markets". Barron's. Retrieved February 5, 2018.
  9. Vane, Howard R.; Mulhearn, Chris (December 6, 2017). The Nobel Memorial Laureates in Economics: An Introduction to Their Careers and Main Published Works. Edward Elgar Publishing. ISBN 9781845426897. Archived from the original on December 6, 2017. Retrieved December 6, 2017 – via Google Books.
  10. "- American Finance Association". www.afajof.org. Archived from the original on December 1, 2017. Retrieved December 6, 2017.
  11. Vane, Howard R.; Mulhearn, Chris (December 6, 2017). The Nobel Memorial Laureates in Economics: An Introduction to Their Careers and Main Published Works. Edward Elgar Publishing. ISBN 9781845426897. Archived from the original on December 6, 2017. Retrieved December 6, 2017 – via Google Books.
  12. Merton, Robert C. (1973). "Theory of Rational Option Pricing". Bell Journal of Economics and Management Science. The RAND Corporation. 4 (1): 141–183. doi:10.2307/3003143. hdl:10338.dmlcz/135817. JSTOR 3003143.
  13. "Robert C. Merton - Faculty & Research - Harvard Business School". www.hbs.edu. Archived from the original on September 28, 2017. Retrieved December 6, 2017.
  14. Robert A. Jarrow Speech in Honor of Robert C. Merton 1999 Mathematical Finance Day Lifetime Achievement Award Archived December 12, 2011, at the Wayback Machine. bu.edu. April 25, 1999
  15. Wright, Karen. "Fellow Program". www.fma.org. Archived from the original on December 1, 2017. Retrieved December 6, 2017.
  16. "- American Finance Association". www.afajof.org. Archived from the original on December 1, 2017. Retrieved December 6, 2017.
  17. "Baker Library: About the Merton Exhibit". June 7, 2008. Archived from the original on June 7, 2008. Retrieved March 29, 2012.
  18. "MIT SHASS: News - 2009 - Merton receives Muh Award". shass.mit.edu. Archived from the original on October 6, 2015. Retrieved December 6, 2017.
  19. "The NBER Reporter 2011 Number 1: News". www.nber.org. Archived from the original on June 10, 2017. Retrieved December 6, 2017.
  20. The Kolmogorov Lecture and Medal Archived April 27, 2010, at the Wayback Machine. Kolmogorov.clrc.rhul.ac.uk (November 13, 2009). Retrieved on January 29, 2012.
  21. Dublin, Trinity News and Events, Trinity College (November 23, 2010). "TCD Mathematics Student Wins Hamilton Prize 2010". www.tcd.ie. Archived from the original on December 6, 2017. Retrieved December 6, 2017.
  22. "CME Group's 2014 Melamed-Arditti Innovation Award - CME Group". www.cmegroup.com. Archived from the original on June 9, 2017. Retrieved December 6, 2017.
  23. "WFE to award the 2013 WFE Award for Excellence to Nobel Laureates Robert C. Merton and Myron S. Scholes". world-exchanges.org. Archived from the original on December 1, 2017. Retrieved December 6, 2017.
  24. "Archived copy" (PDF). Archived (PDF) from the original on September 8, 2015. Retrieved November 27, 2017.CS1 maint: archived copy as title (link)
  25. "VII Congreso de Investigación Financiera IMEF 2017". www.imef-eventos.org.mx. Archived from the original on December 6, 2017. Retrieved December 6, 2017.
Awards
Preceded by
James A. Mirrlees
William Vickrey		 Laureate of the Nobel Memorial Prize in Economics
1997
Served alongside: Myron S. Scholes		 Succeeded by
Amartya Sen
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