Robert Merton (b. 1944)

Who They Were

Robert Merton (born 1944) is an American economist and a major figure in modern financial economics. Working from the early 1970s onward, he contributed deep mathematical foundations to the theory of how financial assets, and especially derivatives, should be valued over time. His work extended and rigorously grounded the framework used to price options and other contracts whose value depends on an underlying asset. In 1997 he shared the Sveriges Riksbank Prize in Economic Sciences with Myron Scholes for a new method to determine the value of derivatives. Like Scholes, he was associated with the hedge fund Long-Term Capital Management, whose collapse followed soon after the award - a sequence frequently noted by critics, although the pricing methods themselves remain widely used.

Key Contributions

Merton is known for placing the theory of derivative pricing on rigorous mathematical foundations, developing continuous-time methods that describe how asset values evolve. His work broadened the options-pricing framework and connected it to a wider theory of financial markets, influencing how both scholars and practitioners model risk and value complex contracts. His 1997 Nobel, shared with Myron Scholes, recognised this new method to determine the value of derivatives. His name is also associated with the earlier group of financial economists whose foundational work was honoured in 1990, though the 1997 prize was specifically for derivatives pricing. As with Scholes, the collapse of Long-Term Capital Management shortly after the award is often cited by critics, even as the underlying pricing framework remains standard in finance.

On EconRecall

American economist who helped build the modern theory of derivative pricing, sharing the 1997 Nobel with Myron Scholes. Play the games that feature Robert Merton:

• Nobel Laureate Timeline