Timeline
- 1941
- Born in Timmins, Ontario, Canada.
- 1961
- Received BA in Economics from McMaster University, Ontario.
- 1964
- Received MBA.
- 1968
- Appointed Associate Professor at Sloan School of Management, MIT.
- 1969
- Received PhD from the University of Chicago.
- 1973
- Appointed Associate Professor at the University of Chicago.
- 1973
- Published seminal paper, “The Pricing of Options and Corporate Liabilities”, with Fischer Black.
- 1983
- Joined Stanford University.
- 1990
- Joined Salomon Brothers as a Special Consultant.
- 1992
- Publication of Taxes and Business Strategy: A Planning Approach.
- 1994
- Co-founded Long-Term Capital Management (LTCM) hedge fund.
- 1996
- Became Professor of Finance Emeritus at Stanford University.
- 1997
- Awarded the Nobel Memorial Prize in Economic Science.
Life and Career
Myron Scholes is Emeritus Professor of Finance at Stanford, the chairman of Platinum Grove Asset Management, and serves on the boards of various organizations, such as the Chicago Mercantile Exchange, and Dimensional Fund Advisors. In 1973, he published a paper with Fischer Black that presented the Black–Scholes equation, an option-pricing model still widely used in today’s markets. In 1990, he joined Salomon Brothers as a managing director, and co-head of its fixed-income derivative sales and trading group, while still conducting research and teaching at Stanford University. He is also a director of the Capital Preservation Fund, a research associate of the National Bureau of Economic Research, and a member of the American Economic Association, and the American Finance Association.
Key Thinking
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Received the Nobel Prize for developing the Black–Scholes model, a new method for determining the value of derivatives, which provides the framework for options valuation, which has become standard in financial markets.
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The Black–Scholes model is used for a vast number of options trades executed every year, and is the basis for all other binomial option models.
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Wrote several papers on investment banking and incentives with Mark Wolfson, and developed a new theory of tax planning under uncertainty and information asymmetry.
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He has recently focused on the interaction and evolution of markets, and financial institutions.
In Perspective
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Myron Scholes has studied and worked with some of the leading figures in finance and financial economics, including Fischer Black, Robert Merton, Eugene Fama, Merton Miller, Paul Cootner, and Franco Modigliani.
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While he was at MIT Sloan School of Management, he started working with Black, and Merton, who was also at MIT. They undertook groundbreaking research in asset pricing and derivative pricing models, including the work on their famous option-pricing model.
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They also developed and extended the field of contingent-claims pricing, and examined continuous-time stochastic processes to the problem of devising hedging strategies.
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Scholes worked on testing the capital asset pricing model (CAPM) with Fischer Black and Michael Jensen, and developed option-pricing technology with Black.
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At the Graduate School of Business at the University of Chicago, he worked on the effects of taxation on asset prices and incentives, and studied the effects of the taxation of dividends on the prices of securities with Fischer Black and Merton Miller.
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Also while at Chicago, he started working with the Center for Research in Security Prices, developing and analyzing high-frequency market data, and helped develop large research data files of daily security prices.
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He examined the efficiency frontier of portfolios––how to construct baskets of assets with optimal trade-offs between risk and return, and focused on the limit of risk-free portfolios.
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In 1994, he joined several colleagues, including John Meriwether and Robert Merton, in founding Long-Term Capital Management (LTCM).
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LTCM was initially extremely successful, with annualized returns of more than 40%; however, in 1998, following crises in the markets in East Asia and Russia, it became the biggest hedge-fund collapse ever seen, losing US$4.6 billion in less than four months.
Quotation
“The world is our laboratory.”
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