Robert C. Merton Explained

Robert C. Merton
Birth Name:Robert Cox Merton
Birth Date:July 31, 1944
Birth Place:New York City, New York, U.S.
Workplaces:Massachusetts Institute of Technology Harvard University
Alma Mater:Columbia University
California Institute of Technology
Massachusetts Institute of Technology
Doctoral Advisor:Paul Samuelson
Doctoral Students:Jonathan E. Ingersoll[1]
Robert Jarrow
Known For:Black–Scholes–Merton model
ICAPM
Merton's portfolio problem
Merton model
Fractional Finance
Long-Term Capital Management
Field:Finance, economics
Prizes:Nobel Memorial Prize in Economic Sciences (1997)
Father:Robert K. 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.[2] [3] 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.[4]

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.[5]

Merton's current research focus is on the topics of lifecycle investing[6] and retirement funding,[7] measuring and monitoring systemic risks in macrofinance,[8] and financial innovation coupled with changing dynamics in financial institutions.[9]

Early life and education

Merton was born in New York City to sociologist Robert K. Merton, who was of Jewish descent,[10] and Suzanne Carhart, who was from a "multigenerational southern New Jersey Methodist/Quaker family." He grew up in Hastings-on-Hudson, New York.

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.[11]

Career

In 1970 Merton joined the faculty of the MIT Sloan School of Management, where he taught until 1988.[12] 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.[9] [13]

In 2010 Robert C. Merton rejoined the MIT Sloan School of Management[14] where he is the School of Management Distinguished Professor of Finance.[9] Since 2010, he also has been a Resident Scientist at Dimensional Fund Advisors, working on pension management.[15]

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 (1986), a member of the National Academy of Sciences (1993) and a fellow of the American Academy of Arts and Sciences.

He remained on the faculty at MIT in 2021.

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.[16] [17]

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,[18] which also elected him a senior fellow. Derivatives Strategy magazine named him to its Derivatives Hall of Fame in 1998[19] 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.[20] A distinguished fellow of the Institute for Quantitative Research in Finance ('Q Group', 1997) and a fellow of the Financial Management Association (2000), Merton received the Nicholas Molodovsky Award for Outstanding Contribution to Investment Research from the CFA Institute (2003).[21]

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.[22] 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.[23] [24]

Personal life

Merton married June Rose in 1966. They separated in 1996. They have three children: two sons and one daughter.[25]

Honours and awards

Publications

See also

External links

Notes and 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. Lo . Andrew W. . Robert C. Merton: The First Financial Engineer . Annual Review of Financial Economics . 1 November 2020 . 12 . 1 . 1–18 . 10.1146/annurev-financial-042720-055018 . 225533917 . en . 1941-1367.
  3. News: Carr . Peter . Harvard's Financial Scientist . 27 March 2023 . Bloomberg Markets . October . 2006. 166–169.
  4. Web site: 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 . 25 March 2023.
  5. Web site: Too Interconnected to Fail? .
  6. Bodie . Zvi . Thoughts on the Future: Life-Cycle Investing in Theory and Practice . Financial Analysts Journal . 2003 . 59 . 1 . 24–29 . 10.2469/faj.v59.n1.2500 . 4480448 . 218511875 . 27 March 2023 . 0015-198X.
  7. News: Pechter . Kerry . How to Solve the World's Retirement Crisis . 27 March 2023 . Retirement Income Journal . January 28, 2021.
  8. Gray . Dale F. . Merton . Robert C. . Bodie . Zvi . New Framework for Measuring and Managing Macrofinancial Risk and Financial Stability . National Bureau of Economic Research . 27 March 2023 . November 2007. 10.3386/w13607 . 166791735 .
  9. Web site: Robert C. Merton . MIT Sloan . 25 March 2023 . en.
  10. Web site: Robert King Merton . American Sociological Association . 27 March 2023.
  11. Bodie . Zvi . Robert C. Merton and the Science of Finance . Annual Review of Financial Economics . 1 November 2020 . 12 . 1 . 19–38 . 10.1146/annurev-financial-100520-074656 . 25 March 2023 . en . 1941-1367.
  12. Web site: Faculty research Department . Biography – Robert C. Merton . Harvard Business School . 2008 . August 30, 2008 . live . https://web.archive.org/web/20070608111620/http://dor.hbs.edu/fi_redirect.jhtml?facInfo=bio&facEmId=rmerton&loc=extn . June 8, 2007 . mdy-all .
  13. Web site: Robert C. Merton - Faculty & Research . Harvard Business School . 27 March 2023 . en.
  14. News: Nobel laureate Robert C. Merton PhD '70 rejoins MIT Sloan faculty . 27 March 2023 . MIT News Massachusetts Institute of Technology . June 17, 2010 . en.
  15. Book: Garcia-Feijóo . Luis . Siegel . Laurence B. . Kohn . Timothy R. . Robert C. Merton and the Science of Finance: A Collection . 2020 . CFA Institute Research Foundation . 978-1-944960-07-0 . en.
  16. Lo . Andrew W. . Merton . Robert C. . Preface to the Annual Review of Financial Economics . Annual Review of Financial Economics . 5 December 2009 . 1 . 1 . 01–17 . 10.1146/annurev-financial-071808-145225 . 16 September 2021. 1721.1/66557 . 154747017 . free .
  17. Lo . Andrew W. . Merton . Robert C. . A Look Back and a Way Forward . Annual Review of Financial Economics . 1 November 2021 . 13 . 1 . v–viii . 10.1146/annurev-fe-13-090321-100001 . 240443908 . 27 January 2022 . en . 1941-1367.
  18. News: Robert Jarrow is cited as one of the world's leading finance theorists . Hittleman. Margo . 19 August 1997 . . 5 February 2018 . Past recipients of the Financial Engineer of the Year award include Robert Merton (Harvard), Fischer Black, Mark Rubinstein (Berkeley) and Stephen Ross (Yale)..
  19. Book: Persson . Torsten . Economic Sciences, 1996-2000 . 2003 . World Scientific . 978-981-02-4961-8 . en.
  20. Book: Read . C. . The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton . 7 June 2012 . Springer . 978-1-137-02614-9 . en.
  21. Web site: CFA Institute Awards . CFA Institute . 27 March 2023.
  22. Goodkin, Michael. The Wrong Answer Faster: The Inside Story of Making the Machine that Trades Trillions. John Wiley & Sons, 2012
  23. News: A Good Time for Caution in the Markets . Sears. Steven . 8 July 2017 . . 5 February 2018 .
  24. Edwards . Franklin R. . Hedge Funds and the Collapse of Long-Term Capital Management . The Journal of Economic Perspectives . 1999 . 13 . 2 . 189–210 . 10.1257/jep.13.2.189 . 2647125 . 0895-3309.
  25. Web site: The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1997 . 2022-10-30 . NobelPrize.org . en-US.
  26. Book: The Nobel Memorial Laureates in Economics: An Introduction to Their Careers and Main Published Works. Howard R.. Vane. Chris. Mulhearn. December 6, 2017. Edward Elgar Publishing. December 6, 2017. Google Books. live. https://web.archive.org/web/20171206114816/https://books.google.com/books?id=tXsAAgAAQBAJ&pg=PA256&lpg=PA256&dq=1986+Merton++Fellow+at+the+American+Academy+of+Arts+and+Sciences.&source=bl&ots=mcp5_AF1Jv&sig=gwZuJvSlC_a4N1KDKJaWF5VzSBA&hl=en&sa=X&ved=0ahUKEwiw5tKk0d_XAhWDmeAKHc9AC8kQ6AEIOzAD#v=onepage&q=1986+Merton++Fellow+at+the+American+Academy+of+Arts+and+Sciences.&f=false. December 6, 2017. mdy-all. 9781845426897.
  27. Web site: Past Presidents . The American Finance Association . 27 March 2023.
  28. Web site: Robert C. Merton . National Academy of Sciences . 27 March 2023.
  29. Web site: Robert Merton . CEPR . 27 March 2023 . en.
  30. Theory of Rational Option Pricing . Merton . Robert C.. Bell Journal of Economics and Management Science . 1973. 4. 1 . 141–183 . 10.2307/3003143 . The RAND Corporation . 3003143. 10338.dmlcz/135817 . free .
  31. Web site: Robert C. Merton - Faculty & Research - Harvard Business School. www.hbs.edu. December 6, 2017. live. https://web.archive.org/web/20170928203129/http://www.hbs.edu/faculty/m/Pages/profile.aspx?facId=6511. September 28, 2017. mdy-all.
  32. Robert A. Jarrow Speech in Honor of Robert C. Merton 1999 Mathematical Finance Day Lifetime Achievement Award . bu.edu. April 25, 1999
  33. Web site: Fellow Program. Karen. Wright. www.fma.org. December 6, 2017. live. https://web.archive.org/web/20171201034151/http://www.fma.org/fellow-program. December 1, 2017. mdy-all.
  34. Web site: - American Finance Association. www.afajof.org. December 6, 2017. dead. https://web.archive.org/web/20171201030231/http://www.afajof.org/details/page/3720801/Fellows.html. December 1, 2017. mdy-all.
  35. Web site: Baker Library: About the Merton Exhibit . June 7, 2008 . March 29, 2012 . dead . https://web.archive.org/web/20080607091150/http://www.library.hbs.edu/hc/exhibits/merton/about.htm . June 7, 2008 .
  36. Web site: MIT SHASS: News - 2009 - Merton receives Muh Award. shass.mit.edu. December 6, 2017. live. https://web.archive.org/web/20151006092732/http://shass.mit.edu/news/news-2009-merton-receives-muh-award. October 6, 2015. mdy-all.
  37. Web site: The NBER Reporter 2011 Number 1: News. www.nber.org. December 6, 2017. live. https://web.archive.org/web/20170610080950/http://nber.org/reporter/2011number1/news.html. June 10, 2017. mdy-all.
  38. http://www.kolmogorov.clrc.rhul.ac.uk/pastwinners.html The Kolmogorov Lecture and Medal
  39. Web site: TCD Mathematics Student Wins Hamilton Prize 2010. Trinity News and Events, Trinity College. Dublin. www.tcd.ie. December 6, 2017. live. https://web.archive.org/web/20171206114816/http://www.tcd.ie/news_events/articles/tcd-mathematics-student-wins-hamilton-prize-2010/1601. December 6, 2017. mdy-all. November 23, 2010.
  40. Web site: CME Group's 2014 Melamed-Arditti Innovation Award - CME Group. www.cmegroup.com. December 6, 2017. live. https://web.archive.org/web/20170609064442/http://www.cmegroup.com/company/center-for-innovation/melamed-arditti-innovation-award-winner-2014.html. June 9, 2017. mdy-all.
  41. Web site: WFE to award the 2013 WFE Award for Excellence to Nobel Laureates Robert C. Merton and Myron S. Scholes. world-exchanges.org. December 6, 2017. live. https://web.archive.org/web/20171201033419/https://www.world-exchanges.org/home/index.php/news/world-exchange-news/wfe-to-award-the-2013-wfe-award-for-excellence-to-nobel-laureates-robert-c-merton-and-myron-s-scholes. December 1, 2017. mdy-all.
  42. Web site: Archived copy . 2017-11-27 . live . https://web.archive.org/web/20150908144503/http://finance.wharton.upenn.edu/conferences/firsprogram/FIRS2014Program.pdf . September 8, 2015 . mdy-all .
  43. Web site: VII Congreso de Investigación Financiera IMEF 2017. www.imef-eventos.org.mx. December 6, 2017. live. https://web.archive.org/web/20171206114816/http://www.imef-eventos.org.mx/2017/fundacion/congreso/programa_general.php. December 6, 2017. mdy-all.
  44. News: PSCA Honors Nancy Gerrie and Robert C. Merton with Lifetime Achievement Awards . 27 March 2023 . American Retirement Association . April 5, 2022.

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