Myron Scholes

Myron Scholes is a Canadian-American financial economist and professor, best known for his fundamental contributions to the pricing of financial derivatives. He was awarded the Nobel Memorial Prize in Economic Sciences in 1997 for his work in developing the Black–Scholes model, a groundbreaking method for valuing stock options. His career spans influential academic positions at institutions like the University of Chicago and Stanford University, as well as a controversial foray into the hedge fund industry with Long-Term Capital Management.

Early life and education

Born in Timmins, Ontario, Scholes moved with his family to Hamilton after the death of his father. He attended Westdale Secondary School before pursuing higher education at McMaster University, where he earned a degree in economics in 1962. He initially considered a career in actuarial science but shifted his focus, subsequently earning an M.B.A. in 1964 and a Ph.D. in 1969 from the University of Chicago. His doctoral studies were heavily influenced by prominent figures at the Chicago school of economics, including his advisors Merton Miller and Eugene Fama.

Academic career and research

After completing his doctorate, Scholes began his academic career as an assistant professor at the MIT Sloan School of Management. In 1973, he returned to the University of Chicago as a professor in the Graduate School of Business, where he collaborated closely with Fischer Black. His early research, often conducted with colleagues like Merton Miller, focused on dividend policy, capital structure, and the effects of taxation on asset prices. This work established his reputation in the field of financial economics and laid the groundwork for his later, more famous contributions.

Black–Scholes model and Nobel Prize

In 1973, Scholes and Fischer Black published their seminal paper, "The Pricing of Options and Corporate Liabilities," in the Journal of Political Economy. This introduced the Black–Scholes model, a partial differential equation that provided a theoretical framework for valuing European options. The model's key insight was that a risk-free portfolio could be constructed by continuously hedging an option with its underlying stock, an idea rooted in the broader efficient-market hypothesis. For this revolutionary work, which was later extended by Robert C. Merton, Scholes and Merton were awarded the Nobel Memorial Prize in Economic Sciences in 1997; Fischer Black had died in 1995 and was thus ineligible. The model's publication coincided with the opening of the Chicago Board Options Exchange.

Later career and Long-Term Capital Management

In the early 1980s, Scholes moved to Stanford University as a professor at the Graduate School of Business. He also became a managing director and consultant at Salomon Brothers. In 1994, he co-founded the hedge fund Long-Term Capital Management (LTCM) with John Meriwether and fellow Nobel laureate Robert C. Merton. The fund, which employed complex arbitrage strategies based on financial models, initially generated enormous returns. However, following the 1997 Asian financial crisis and the 1998 Russian financial crisis, LTCM faced catastrophic losses in 1998, requiring a Federal Reserve-orchestrated bailout by a consortium of major Wall Street banks to prevent a wider financial crisis.

Personal life and legacy

Scholes has been married twice and has three children. Following the collapse of Long-Term Capital Management, he remained active in finance, serving as chairman of Platinum Grove Asset Management and continuing his academic affiliations. He is a fellow of the American Finance Association and the Econometric Society. Despite the notoriety of LTCM, his intellectual legacy remains anchored by the Black–Scholes model, which fundamentally transformed global financial markets, spurred the growth of the derivatives market, and earned a permanent place in the history of economic thought.

Category:American economists Category:Canadian economists Category:Nobel laureates in Economics Category:1941 births Category:Living people