Robert C. Merton

Origins and early life

Robert Cox Merton was born in New York City on 31 July 1944 and grew up in Hastings-on-Hudson. He is of Jewish descent through his father, the sociologist Robert K. Merton, who was born Meyer Schkolnick to Jewish immigrants; his mother, Suzanne Carhart, came from a southern New Jersey Methodist and Quaker family. He read engineering mathematics at Columbia, took a master's at Caltech and a doctorate in economics at MIT, and joined the MIT Sloan School in 1970.

Work and career

His achievement was to bring the mathematics of continuously changing quantities into finance. An option is a bet on where a price will be at some future date; Merton showed how to value one by constructing, moment by moment, a portfolio that exactly offsets its risk — so that the option's fair price follows from the absence of a free lunch rather than from anyone's opinion about the future. The Black–Scholes–Merton formula that came out of it is used every day in markets that did not exist before it.

He shared the Nobel Memorial Prize in Economic Sciences in 1997 with Myron Scholes. He taught at Harvard from 1988 and returned to MIT Sloan in 2010.