DEFINITION of 'Robert C. Merton'
An American economist who won the 1997 Nobel Memorial Prize in Economic Sciences, along with Myron Scholes, for his method of determining the value of options, the Black-Scholes model. Fischer Black, the co-author of the Black-Scholes equation on which the model is based, died in 1995. Merton also developed an intertemporal capital asset pricing model based on William Sharpe's capital asset pricing model (CAPM). CAPM is a way of calculating anticipated investment returns based on the level of risk.
BREAKING DOWN 'Robert C. Merton'
Merton was born in 1944 in New York City and earned his Ph.D. in economics from the Massachusetts Institute of Technology, where he studied under Paul Samuelson. He taught at MIT for nearly two decades after receiving his doctorate, then taught at Harvard for another two decades. Along with Scholes and others, Merton was a founding principal of the hedge fund Long-Term Capital Management, which went from tremendous success to spectacular failure and became the subject of a tax evasion lawsuit.