Option Pricing in Theory & Practice: The Nobel Prize Research of Robert C. MertonAbout this Art


Nobel Prize Award Ceremony, 1997. Robert Cox Merton Papers, HBS Archives, Baker Library Historical Collections

In October 1997, the Royal Swedish Academy of Sciences announced that the Nobel Prize in Economic Sciences was to be awarded to Professor Robert C. Merton, Harvard University, and Professor Myron S. Scholes, Stanford University, "for a new method to determine the value of derivatives."

Robert Merton is the 35th Harvard University faculty member - and the first from the Graduate School of Business Administration - to be awarded a Nobel Prize. To celebrate both an extraordinary honor and a remarkable man, the Baker Library presents an exhibition exploring the context in which Professor Robert Merton conducted his Nobel Prize research, from his early influences and investigations as a young doctoral student more than twenty-five years ago to the impact and growth of his groundbreaking work in the current academic and financial communities.

The Black-Scholes option pricing model established the everyday use of mathematical models as essential tools in the world of finance, both in the classroom and on the trading floor. The model offers a methodology to predict the seemingly unpredictable by using the lessons of complex mathematics and probability theory to forecast stock valuations, making it possible to successfully manage risk in the financial market. In less than thirty years it has changed the course of economic theory and financial practice. With the option pricing model firmly in place, Merton's research as a member of the Harvard Business School faculty continues to evolve as he turns his attention to new analyses of the financial system.