Robert C. Merton and Myron S. Scholes Won 1997 Nobel Prize for Finding Ways to Value Stock Options and Other Financial Contracts

Research Associates Robert C. Merton and Myron S. Scholes won the Nobel Memorial Prize in Economic Sciences in 1997 for their development of a mathematical formula aimed at measuring the value of stock options and other financial commodities.

Scholes and Fischer Black, a colleague who died prior to the award, developed the Black-Scholes option valuation formula, which made options trading more accessible by giving investors a benchmark for valuing them. Merton generalized the formula, allowing it to be applied to financial matters such as mortgages and student loans.

Merton, Scholes, and Black “laid the foundation for the rapid growth of markets for derivatives in the last ten years,” the Royal Swedish Academy of Sciences explained, and variations of their method “may be used to value insurance contracts and guarantees, or the flexibility of physical investment projects.”

At the time of the award, Merton was George Fisher Baker Professor of Business Administration at Harvard Business School and was affiliated with the NBER's program on Asset Pricing. Scholes was the Frank E. Buck Professor of Finance Emeritus at the Stanford Graduate School of Business.

More information on these Nobel laureates