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Robert C. Merton

Robert Cox Merton (born July 31, 1944), is a leading scholar in the field of finance and was one of three men who, in the early 1970s, developed the mathematics of financial options.

Merton was born in New York, New York and received his Bachelor of Science degree in Engineering Mathematics from the School of Engineering and Applied Science of Columbia University.

Currently, Merton is a professor at the Harvard Business School; he also holds the rank of University Professor, which is the highest professorial rank at Harvard University.

Merton is also the son of Robert K. Merton, an outstanding sociologist at Columbia University.

Merton resides in both Cambridge, MA and New York, NY. He has three children.

Merton studied the options pricing model. He then applied optimal control theory in order to derive consumption and portfolio allocation. His work paved the way for the now flourishing field of financial engineering, and quantitative finance which applies his methods to calculate prices for exotic derivatives with arbitrary payoffs.

In 1969 Merton published groundbreaking work on a dilemma that all investors face. Merton's portfolio problem enables people to decide how much of their income they can consume now and of the rest income, how much of it should be allocated between stocks and bonds to maximize the usefulness of that income.

In 1970 Merton introduced a structural credit risk model. The 'Merton Model' refers to a model that treats equity as an option on the firm's assets. The reduced form default probabilities that stem from Merton's insights were introduced commercially by Kamakura Corporation, where Robert Jarrow is director of research, in 2002.

In 1973 Merton introduced the Intertemporal Capital Asset Pricing Model known as ICAPM. ICAPM incorporates explicit hedges that investors make to protect themselves from savings shortfalls or changes in the investment opportunity set.

In 1999 Merton got the lifetime achievement award in mathematical finance.

In 2002 Merton threw himself into the public controversy over how corporations ought to account for the stock options they often award as parts of a compensation package.

In 2005 the Baker Library at Harvard University opened The Merton Exhibit to honor his lifelong achievements and inspire students to pursue academic careers.