NSF - SBE Nuggets - Nobel Prize

[Nobel Prize in Economics]
Some thinkers fundamentally change the basis of our thought. Among them are Harvard Professor Robert C. Merton and Stanford Professor Myron S. Scholes, recipients of the 1997 Nobel Prize in Economic Sciences for their work in creating a new way of determining the valuation of derivatives.

[Wall Street Photo] Merton helped develop a new formula for pricing stock options with Myron Scholes and the now deceased Fisher Black, which was published separately by both authors in 1973. The formula computes the price of an option from the value of the underlying stock, the exercise price of the option, its time to expiration, the risk-free interest rate, and the variability of the stock's price. So valuable was this formula that by the end of the year Texas Instruments was advertising a calculator that could calculate the Black-Scholes price for an option. The work of Merton and Scholes provides a method of managing the risks inherent in financial markets. This groundbreaking method has broad applications in other areas of global finance. A 1991 article in The Economist said, "In fact, the model can be used to examine any contract whose worth depends on the uncertain future value of an asset."

Recognizing that the pursuit of knowledge in all fields of research requires financial backing, the National Science Foundation has supported the work of at least 23 Nobel Laureates. In addition at least 17 laureates are former National Science Foundation Graduate Fellows. In 29 years, the vast majority of U.S. recipients of the prize in economics were National Science Foundation grantees.

Merton was aided in his work by a graduate fellowship and three research grants from the National Science Foundation. On numerous occasions he has served as a reviewer for grant applications submitted to the Foundation.

Commenting on the announcement of the 1997 Nobel laureates, National Science Foundation Director Neal Lane said, “Some say that we are approaching the end of science, and that one day there will be no more mysteries left to understand and no new knowledge left to uncover. I disagree with that view. The discoveries that we honor today were at one time unimaginable.”

U.S. Nobel Award Winners in Economics
Since Inception of Prize in 1969

Denotes NSF Awardee

1969
1970	Professor Paul A. Samuelson, Massachusetts Institute of Technology
1971	Professor Simon Kuznets, Harvard University
1972	Professor Kenneth J. Arrow, Harvard University
1973	Professor Wassily Leonfief, Harvard University
1974
1975	Professor Tjalling C. Koopmans, Yale University
1976	Professor Milton Friedman, University of Chicago
1977
1978	Professor Herbert A. Simon, Carnegie-Mellon University
1979	Professor Theodore W. Schultz, University of Chicago
1980	Professor Lawrence R. Klein, University of Pennsylvania
1981	Professor James Tobin, Yale University
1982	Professor George J. Stigler, University of Chicago
1983	Professor Gerard Debreu, University of California, Berkeley
1984
1985	Professor Franco Modigliani, Massachusetts Institute of Technology
1986	Professor James M. Buchanan, George Mason University
1987	Professor Robert M. Solow, Massachusetts Institute of Technology
1988
1989
1990	Professor Harry M. Markowitz, City University of New York Professor Merton H. Miller, University of Chicago Professor William F. Sharpe, Stanford University
1991
1992	Professor Gary S. Becker, University of Chicago
1993	Professor Robert W. Fogel Professor Douglas C. North
1994	Professor John C. Harsanyi, University of California, Berkeley Professor John F. Nash, Princeton University
1995	Professor Robert E. Lucas, Jr., University of Chicago
1996
1997	Professor Robert C. Merton, Harvard University Professor Myron S. Scholes, Stanford University

For more information please see:

Black, F. and M. Scholes, 1973, "The Pricing of Options and Corporate Liabilities", Journal of Political Economy, Vol. 81, pp. 637-654.

Merton, R.C., 1973, "Theory of Rational Option Pricing", Bell Journal of Economics and Management Science, Vol. 4, pp. 637-654.

The Nobel Foundation - http://www.nobel.se/

This research is supported by the Economic Sciences Program.