Market Overview

This Day In Market History: Nobel Prize-Winning Economist Robert Merton Is Born

This Day In Market History: Nobel Prize-Winning Economist Robert Merton Is Born

Each day, Benzinga takes a look back at a notable market-related moment that occurred on this date.

What Happened? On this day in 1944, Nobel Prize-winning economist Robert Merton was born.

Where The Market Was: The Dow Jones Industrial Average closed at 146.14 and the S&P 500 traded at 12.81.

What Else Was Going On In The World? In 1944, the U.S. passed the GI Bill of Rights. Franklin D. Roosevelt became the only U.S. president to be elected to a fourth term in office. The average American earned $2,400 per year.

Pioneer In Option Mathematics: Along with Fischer Black and Myron Scholes, Merton gained notoriety for his work in continuous-time finance, including the development of the first continuous-time option pricing model, the Black-Scholes formula. The Black-Scholes model incorporates variables such as stock prices, dividends, option strike price, interest rates, expiration date and volatility to calculate an expected value for an option contract.

Merton, Black and Scholes introduced their model in a 1973 paper in the Journal of Political Economy.

Merton went on to co-found hedge fund Long-Term Capital Management in 1993. After several years of earning high returns, Long-Term Capital lost $4.6 billion in 1998 and was eventually bailed out by several banks and shut down in 2000.

Unfortunately, Black died in 1995, but Merton and Scholes received the Nobel Prize in Economics for their work in 1997.

Photo by the Massachusetts Institute of Technology via Wikimedia.


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