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Merton, Robert C.


MERTON, ROBERT C. (1944– ), U.S. economist and educator; co-recipient of the 1997 Nobel Memorial Prize for economics. A New York City native, raised in Hastings-on-Hudson, n.y., Merton was the middle child of renowned sociologist Robert K. *Merton and Suzanne Carhart. In 1966 Merton received his B.S. in engineering mathematics from Columbia University and an M.S. in 1967 from Caltech for applied mathematics. He switched his focus to economics and transferred to the Massachusetts Institute of Technology (mit) on a full fellowship and completed his Ph.D. in 1970; subsequently, he began his teaching career at mit's Sloan School of Management where he taught through 1988. Upon leaving mit he moved to the Harvard Business School where, in 1998, he was named its first John and Natty McArthur University Professor.

As a youth, mathematics was his favorite school subject and the love of both numbers and baseball led him to memorize all the big-leaguers' statistics. While his mother provided him with his practical life knowledge, his father served as his enduring intellectual adviser despite his choice of a starkly divergent academic path.

Searching for real-life applications of mathematics is what lured Merton to the field of economics. His research while a member of mit's faculty led to his 1973 paper "The Theory of Rational Option Pricing" (appearing in the Bell Journal of Economics) not long after Myron Scholes and Fischer Black advanced their landmark option-pricing formula in the Journal of Political Economy. Together, the men successfully tested the system in the live market with their mutual fund, Money Market/Options Investment, Inc., activated in 1976. The ramification on Wall Street of their mutually supporting theories on valuing stock options was considerable and served as the backbone to the formation of enormous "derivatives" markets. This watershed in economics was finally honored in 1997 when Merton and Scholes were bestowed with the Nobel Memorial Prize in economic sciences.

Merton's success was tempered by the 1998 collapse of his and Scholes' Long-Term Capital Management (ltcm), the Greenwich, Conn.-based hedge fund of which they were two of several founders in 1993. Undeterred, he co-founded Integrated Finance Limited (ifl), an international investment firm based in New York City in 2003, and also serves as its Chief Science Officer; in that same year, Dimensional Fund Advisors, an investment management company, chose Merton as a member of its board of directors/trustees. He served on numerous corporate boards, held the presidency of the American Finance Association in 1986, and was awarded many honorary degrees from various universities. Along with the scores of articles appearing in professional journals during his three decades in academia, Merton wrote several books including Continuous-Time Finance (1990) and Finance (1998), co-authored with Zvi Bodie. In 2004 Merton donated his mit and Harvard lecture notes on finance theory to the Professional Risk Managers' International Association (prmia) for the purpose of training financial risk managers.

[Dawn Des Jardins (2nd ed.)]

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