Robert C. Merton

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Robert C. Merton
Robert Merton November 2010 03(1).jpg
Merton in 2010
Born
Robert Cox Merton

(1944-07-31) July 31, 1944 (age 80)
New York City, New York, U.S.
Alma mater Columbia University
California Institute of Technology
Massachusetts Institute of Technology
Known for Black–Scholes–Merton model
ICAPM
Merton's portfolio problem
Merton model
Fractional Finance
Long-Term Capital Management
Father Robert K. Merton
Awards Nobel Memorial Prize in Economic Sciences (1997)
Scientific career
Fields Finance, economics
Institutions Massachusetts Institute of Technology Harvard University
Doctoral advisor Paul Samuelson
Doctoral students Jonathan E. Ingersoll [1]
Robert Jarrow

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. [2] [3] [4] In 1997 Merton together with Myron Scholes were awarded the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel for the method to determine the value of derivatives. [5] [6]

Contents

Merton was on the board of directors of Long-Term Capital Management (LTCM), a highly leveraged hedge fund that collapsed in 1998, wiping out most of the value paid in by the investors, and requiring a $3.6 billion bailout from a group of 14 banks, in a deal brokered and put together by the Federal Reserve Bank of New York. [7]

Merton's current research focus is on the topics of lifecycle investing [8] and retirement funding, [9] measuring and monitoring systemic risks in macrofinance, [10] and financial innovation coupled with changing dynamics in financial institutions. [11]

Early life and education

Merton was born in New York City to sociologist Robert K. Merton, who was of Jewish descent, [12] and Suzanne Carhart, who was from a "multigenerational southern New Jersey Methodist/Quaker family." [5] He grew up in Hastings-on-Hudson, New York. [5]

Merton 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 Samuelson. [2]

Career

In 1970 Merton joined the faculty of the MIT Sloan School of Management, where he taught until 1988. [13] 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, becoming Professor Emeritus at Harvard University in 2010. [11] [14]

In 2010 Robert C. Merton rejoined the MIT Sloan School of Management [15] where he is the School of Management Distinguished Professor of Finance. [11] Since 2010, he also has been a Resident Scientist at Dimensional Fund Advisors, working on pension management. [16]

Merton received the Alfred Nobel Memorial Prize in Economic Sciences in 1997 for a new methodology to value derivatives. [5] He is past President of the American Finance Association (1986), [17] a member of the National Academy of Sciences (1993) [18] and a fellow of the American Academy of Arts and Sciences. [19]

He remained on the faculty at MIT in 2021. [20]

Research

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 was a founding co-editor of the Annual Review of Financial Economics , serving from 2009 to 2021. [21] [22]

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, [23] which also elected him a senior fellow. Derivatives Strategy magazine named him to its Derivatives Hall of Fame in 1998 [24] as did Risk magazine to its Risk Hall of Fame in 2002. He also received Risk’s Lifetime Achievement Award for contributions to the field of risk management in 2003. [25] A distinguished fellow of the Institute for Quantitative Research in Finance ('Q Group', 1997) [5] and a fellow of the Financial Management Association (2000), [26] Merton received the Nicholas Molodovsky Award for Outstanding Contribution to Investment Research from the CFA Institute (2003). [27]

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. [28] 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. [29] [30]

Personal life

Merton married June Rose in 1966. They separated in 1996. They have three children: two sons and one daughter. [31]

Honours and awards

Publications

See also

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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. 1 2 Bodie, Zvi (November 1, 2020). "Robert C. Merton and the Science of Finance". Annual Review of Financial Economics. 12 (1): 19–38. doi:10.1146/annurev-financial-100520-074656. ISSN   1941-1367 . Retrieved March 25, 2023.
  3. ↑ Lo, Andrew W. (November 1, 2020). "Robert C. Merton: The First Financial Engineer". Annual Review of Financial Economics. 12 (1): 1–18. doi:10.1146/annurev-financial-042720-055018. ISSN   1941-1367. S2CID   225533917.
  4. ↑ Carr, Peter (2006). "Harvard's Financial Scientist" (PDF). Bloomberg Markets. No. October. pp. 166–169. Retrieved March 27, 2023.
  5. 1 2 3 4 5 6 7 Robert C. Merton on Nobelprize.org OOjs UI icon edit-ltr-progressive.svg , accessed 11 October 2020
  6. ↑ "The Permanent Exhibit - Option Pricing in Theory & Practice: The Nobel Prize Research of Robert C. Merton - Exhibits - Historical Collections - Harvard Business School". Harvard Business School. Retrieved March 25, 2023.
  7. ↑ "Too Interconnected to Fail?" (PDF).
  8. ↑ Bodie, Zvi (2003). "Thoughts on the Future: Life-Cycle Investing in Theory and Practice". Financial Analysts Journal. 59 (1): 24–29. doi:10.2469/faj.v59.n1.2500. ISSN   0015-198X. JSTOR   4480448. S2CID   218511875 . Retrieved March 27, 2023.
  9. ↑ Pechter, Kerry (January 28, 2021). "How to Solve the World's Retirement Crisis". Retirement Income Journal. Retrieved March 27, 2023.
  10. ↑ Gray, Dale F.; Merton, Robert C.; Bodie, Zvi (November 2007). "New Framework for Measuring and Managing Macrofinancial Risk and Financial Stability". Working Paper Series. National Bureau of Economic Research. doi:10.3386/w13607. S2CID   166791735 . Retrieved March 27, 2023.{{cite journal}}: Cite journal requires |journal= (help)
  11. 1 2 3 "Robert C. Merton". MIT Sloan. Retrieved March 25, 2023.
  12. ↑ "Robert King Merton". American Sociological Association. Retrieved March 27, 2023.
  13. ↑ Faculty research Department (2008). "Biography – Robert C. Merton". Harvard Business School. Archived from the original on June 8, 2007. Retrieved August 30, 2008.
  14. ↑ "Robert C. Merton - Faculty & Research". Harvard Business School. Retrieved March 27, 2023.
  15. ↑ "Nobel laureate Robert C. Merton PhD '70 rejoins MIT Sloan faculty". MIT News | Massachusetts Institute of Technology. June 17, 2010. Retrieved March 27, 2023.
  16. ↑ Garcia-Feijóo, Luis; Siegel, Laurence B.; Kohn, Timothy R. (2020). Robert C. Merton and the Science of Finance: A Collection. CFA Institute Research Foundation. ISBN   978-1-944960-07-0.
  17. 1 2 "Past Presidents". The American Finance Association. Retrieved March 27, 2023.
  18. 1 2 "Robert C. Merton". National Academy of Sciences. Retrieved March 27, 2023.
  19. 1 2 3 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.
  20. ↑ Dizikes, Peter (May 12, 2021), Robert C. Merton honored with MIT's Killian Award, MIT News, retrieved April 4, 2024
  21. ↑ Lo, Andrew W.; Merton, Robert C. (December 5, 2009). "Preface to the Annual Review of Financial Economics". Annual Review of Financial Economics. 1 (1): 01–17. doi:10.1146/annurev-financial-071808-145225. hdl: 1721.1/66557 . S2CID   154747017 . Retrieved September 16, 2021.
  22. ↑ Lo, Andrew W.; Merton, Robert C. (November 1, 2021). "A Look Back and a Way Forward". Annual Review of Financial Economics. 13 (1): v–viii. doi:10.1146/annurev-fe-13-090321-100001. ISSN   1941-1367. S2CID   240443908 . Retrieved January 27, 2022.
  23. ↑ 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).
  24. ↑ Persson, Torsten (2003). Economic Sciences, 1996-2000. World Scientific. ISBN   978-981-02-4961-8.
  25. ↑ Read, C. (June 7, 2012). The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton. Springer. ISBN   978-1-137-02614-9.
  26. 1 2 Wright, Karen. "Fellow Program". www.fma.org. Archived from the original on December 1, 2017. Retrieved December 6, 2017.
  27. 1 2 "CFA Institute Awards" (PDF). CFA Institute. Retrieved March 27, 2023.
  28. ↑ Goodkin, Michael. The Wrong Answer Faster: The Inside Story of Making the Machine that Trades Trillions. John Wiley & Sons, 2012
  29. ↑ Sears, Steven (July 8, 2017). "A Good Time for Caution in the Markets". Barron's . Retrieved February 5, 2018.
  30. ↑ Edwards, Franklin R. (1999). "Hedge Funds and the Collapse of Long-Term Capital Management". The Journal of Economic Perspectives. 13 (2): 189–210. doi:10.1257/jep.13.2.189. ISSN   0895-3309. JSTOR   2647125.
  31. ↑ "The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1997". NobelPrize.org. Retrieved October 30, 2022.
  32. ↑ "Robert Merton". CEPR. August 21, 2018. Retrieved March 27, 2023.
  33. ↑ Merton, Robert C. (1973). "Theory of Rational Option Pricing". Bell Journal of Economics and Management Science. 4 (1). The RAND Corporation: 141–183. doi:10.2307/3003143. hdl: 10338.dmlcz/135817 . JSTOR   3003143.
  34. ↑ "Robert C. Merton - Faculty & Research - Harvard Business School". www.hbs.edu. Archived from the original on September 28, 2017. Retrieved December 6, 2017.
  35. ↑ 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
  36. ↑ "- American Finance Association". www.afajof.org. Archived from the original on December 1, 2017. Retrieved December 6, 2017.
  37. ↑ "Baker Library: About the Merton Exhibit". June 7, 2008. Archived from the original on June 7, 2008. Retrieved March 29, 2012.
  38. ↑ "MIT SHASS: News - 2009 - Merton receives Muh Award". shass.mit.edu. Archived from the original on October 6, 2015. Retrieved December 6, 2017.
  39. ↑ "The NBER Reporter 2011 Number 1: News". www.nber.org. Archived from the original on June 10, 2017. Retrieved December 6, 2017.
  40. ↑ 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.
  41. ↑ 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.{{cite web}}: CS1 maint: multiple names: authors list (link)
  42. ↑ "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.
  43. ↑ "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.
  44. ↑ "Archived copy" (PDF). Archived (PDF) from the original on September 8, 2015. Retrieved November 27, 2017.{{cite web}}: CS1 maint: archived copy as title (link)
  45. ↑ "VII Congreso de Investigación Financiera IMEF 2017". www.imef-eventos.org.mx. Archived from the original on December 6, 2017. Retrieved December 6, 2017.
  46. ↑ "PSCA Honors Nancy Gerrie and Robert C. Merton with Lifetime Achievement Awards". American Retirement Association. April 5, 2022. Retrieved March 27, 2023.
Awards
Preceded by Laureate of the Nobel Memorial Prize in Economics
1997
Served alongside: Myron S. Scholes 		Succeeded by
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