Robert C. Merton

Robert Carhart Merton ( born July 31, 1944 in New York) is an American financial economist. Its main application is the quantitative analysis of the capital market with methods of modern stochastics, based on a modeling of the future price performance of the capital goods as a continuous Brownian motion. His most famous result is the confirmation that the Black -Scholes formula is valid for the determination of option values ​​in the case of continuous time. For this he received in 1997 together with Myron S. Scholes Nobel Prize in Economics. Similar contributions he made to the life cycle model and the use of option pricing models as insolvency prediction.

Life

Robert C. Merton is the son of Robert K. Merton. His mother Suzanne Carhart came from a traditional Methodisten-/Quäkerfamilie from New Jersey.

Even as a child he was interested in mathematics and finance. He studied at the School of Engineering and Applied Science at Columbia University. After his degree in applied mathematics in 1966, he went to the California Institute of Technology to write a thesis, but in 1967 decided to start studying business administration at the Massachusetts Institute of Technology. Here he was greatly impressed by Paul Samuelson, whose assistant he became. After receiving his doctorate in 1970, he taught economics at the MIT Sloan School of Management until 1988, when he was appointed to the Harvard University.

At the Sloan School he met Myron Scholes and Fischer Black know. From their collaboration fundamental work on the valuation of stock options arose. The method is now known as the Black-Scholes model. The name Merton -Black- Scholes method would be fairer, but has not enforced. All three have been recognized as part of the Nobel Prize ceremony. Fischer Black was already dead, or he would become co- winners.

1986 Merton was president of the American Finance Association. He was appointed to the National Academy of Sciences in 1993.

Merton applied the financing models found by him, among other things as co-founder of Long -Term Capital Management ( LTCM ). This Fund established in 1994, developed and marketed innovative financial products. By 1998, LTCM had completed according to a published estimate contracts worth a total of a trillion dollars, where it came to derivatives, swaps and other complex financial instruments, among others. Due to the deteriorating macroeconomic conditions in the emerging markets businesses of LTCM came under increasing pressure. It was feared by the bad speculations a chain reaction that could lead to a collapse of international financial markets. In a hitherto unique in the world situation leading financial institutions agreed to save it from collapse by the injection of new capital LTCM.

In 2002, he intervened in the debate about the posting of employee stock options. The granting of stock options was in the years before a popular means to retain employees at Internet startup companies. It is common practice, these options in equity and not as an expense (ie income statement ) to be recorded. This practice is done by some economists partly responsible for that it came to around the year 2000 in an inflation of stock prices and subsequent bursting of the speculative bubble. Merton advocated, to record awarded stock options as an expense.

Works

• Robert Merton, Zvi Bodie: Finance, Prentice- Hall, New Jersey 1998.
• R. Merton, D. Crane, K. Froot, P. Mason, A. Perold, Z. Bodie, E. Sirri, and P. Tufano: The Global Financial System: A Functional Perspective, Harvard Business School Press, Boston 1995.