The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Merton, Robert C. (Born 1944)

  • Darrell Duffie
Reference work entry


Robert C. Merton, who developed the theory of option pricing with Myron Scholes and the Fischer Black, is responsible for a new approach to investments and asset pricing, based in part on stochastic calculus. Awarded the Nobel prize in 1997, Merton’s other contributions to financial economics include the intertemporal capital asset pricing model (ICAPM). He has written extensively on pension planning, social security, and bank deposit insurance.


American Finance Association Arbitrage Black, F. Black–Scholes option pricing model Derivative securities Intertemporal capital asset pricing model Long-Term Capital Management (LTCM) Markowitz, H. Mean-variance investment theory Merton, R. Miller, M. Modigliani, F. Rational option pricing theory Scholes, M. Sharpe, W. Stochastic calculus 

JEL Classifications

This is a preview of subscription content, log in to check access.


  1. Bernstein, P. 1992. Capital ideas. New York: Free Press.Google Scholar
  2. Black, F. 1989. How we came up with the option formula. Journal of Portfolio Management 15: 4–8.CrossRefGoogle Scholar
  3. Black, F., and M. Scholes. 1973. The pricing of options and corporate liabilities. Journal of Political Economy 81: 637–654.CrossRefGoogle Scholar
  4. Duffie, D. 1998. Black, Merton and Scholes – Their central contributions to economics. Scandinavian Journal of Economics 100: 411–424.CrossRefGoogle Scholar
  5. Greenspan, A. 1998. Private-sector refinancing of the large hedge fund, Long-Term Capital Management. Testimony before the Committee on Banking and Financial Services, US House of Representatives, 1 October. Online. Available at Accessed 26 July 2005.
  6. Itô, K. 1951. On a formula concerning stochastic differentials. Nagoya Mathematics Journal 3: 55–65.CrossRefGoogle Scholar
  7. Jarrow, R., and P. Protter. 2004. A short history of stochastic integration and mathematical finance: The early years, 1880–1970. In The Herman Rubin festschrift, IMS Lecture Notes 45, 75–91. Institute of Mathematical Statistics: Bethesda, MD.Google Scholar
  8. Markowitz, H. 1959. Portfolio selection: Efficient diversification of investment. New York: Wiley.Google Scholar
  9. Modigliani, F., and M. Miller. 1958. The cost of capital, corporation finance, and the theory of investment. American Economic Review 48: 261–297.Google Scholar
  10. Royal Swedish Academy of Sciences. 1998. The nobel memorial prize in economics 1997. Scandinavian Journal of Economics 100: 405–409.CrossRefGoogle Scholar
  11. Schaefer, S. 1998. Robert Merton, Myron Scholes and the development of derivative pricing. Scandinavian Journal of Economics 100: 425–445.CrossRefGoogle Scholar
  12. Sharpe, W. 1964. Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance 19: 425–442.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Darrell Duffie
    • 1
  1. 1.