Robert C. Merton

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects ...
  3. Economist

    An expert who studies the relationship between a society's resources ...
  4. Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected ...
  5. Black Scholes Model

    A model of price variation over time of financial instruments ...
  6. Long-Term Capital Management - ...

    A large hedge fund led by Nobel Prize-winning economists and ...
Related Articles
  1. Bonds & Fixed Income

    Achieving Better Returns In Your Portfolio

    We look at three risk factors that best explain the bulk of equity performance.
  2. Investing Basics

    Beta: Know The Risk

    Beta says something about price risk, but how much does it say about fundamental risk factors? Find out here.
  3. Fundamental Analysis

    Taking Shots At CAPM

    Find out why many investors think the capital asset pricing model is full of holes.
  4. Options & Futures

    How Risk Free Is The Risk-Free Rate Of Return?

    This rate is rarely questioned - unless the economy falls into disarray.
  5. Fundamental Analysis

    The History Of The Modern Portfolio

    Learn how the writings of John Burr Williams and Harry Markowitz led to the creation of the investment portfolio.
  6. Fundamental Analysis

    The Capital Asset Pricing Model: An Overview

    CAPM helps you determine what return you deserve for putting your money at risk.
  7. Forex Education

    Reduce Your Risk With ICAPM

    Avoid unnecesary risks involved in CAPM calculations by also incorporating ICAPM into the mix.
  8. Mutual Funds & ETFs

    What is the difference between a hedge fund and a private equity fund?

    Learn the primary differences between hedge funds and private equity funds, both of which are utilized by high net worth investors.
  9. Mutual Funds & ETFs

    How do hedge funds determine what assets to own?

    Learn about the various types of investments that hedge fund managers use, and explore basic hedge fund management trading strategies.
  10. Mutual Funds & ETFs

    What is the purpose of a hedge fund?

    Find out what a hedge fund is, how it is set up and why it is different than other forms of investment partnerships like mutual funds.

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center