Nobel Winner In Economics
Robert C. Merton of Harvard University, the son of the famous Columbia University sociologist Robert K. Merton, who lives on Hither Lane, East Hampton, was awarded the Nobel Prize in Economics with Myron S. Scholes of Stanford University for their work on the pricing of financial instruments called options.
Mr. Merton, at 53, is the youngest economist ever to receive the Nobel Prize.
"Puts" and "calls" - the right to buy or sell an asset at an agreed-upon price and time - had been traded for centuries by canny traders in such markets as tulips in 17th-century Holland, wheat in 18th-century France, or fish in 18th-century Sweden.
New Formula
The work of Mr. Merton and Mr. Scholes made clear the similarities underlying these traditional options.
"When you look hard enough, it turns out there are options everywhere," said Mr. Merton at a news conference at the Harvard Business School. Auto insurance, home mortgages, school loans, contingent compensation, deposit insurance can all be characterized as options, and the two economists demonstrated, with an exact formula, that the underlying principles of valuation are essentially the same for all of them.
Thousands of traders and investors now use the formula to value stock options in markets throughout the world.
First Buy At 10
"If you ask what idea in the last 50 or 60 years coming from economic research has had the biggest impact on the world, this is it," said Avainash Dixit, an economics professor at Princeton University.
Mr. Merton was born in 1944 in New York City and always had a keen interest in markets and trading. He bought his first share of stock at the age of 10.
Asked whether his father had influenced him, Mr. Merton said that for the last 30 years he and his father had "pretty much talked every day, and often several times a day."
From The Start
"Mathematics was for him a language from the very early years," said his father.
The economist received his Ph.D in economics in 1970 from the Massachusetts Institute of Technology and now teaches at the Harvard Business School.
In what might seem some kind of prescience about her stepson, Harriet Zuckerman, Robert K. Merton's wife and vice president of the Mellon Foundation, is the author of "Scientific Elite," a book about Nobel laureates in the United States.