In Honor of the Nobel Laureates Robert C. Merton and Myron S. Scholes: A Partial Differential Equation That Changed the World | Zendy

Robert A. Jarrow | Zendy

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In Honor of the Nobel Laureates Robert C. Merton and Myron S. Scholes: A Partial Differential Equation That Changed the World

Author(s) -

Robert A. Jarrow

Publication year - 1999

Publication title -

the journal of economic perspectives

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 9.614

H-Index - 196

eISSN - 1944-7965

pISSN - 0895-3309

DOI - 10.1257/jep.13.4.229

Subject(s) - honor , black–scholes model , mathematical economics , economics , valuation of options , value (mathematics) , partial differential equation , philosophy , mathematics , financial economics , computer science , mathematical analysis , volatility (finance) , statistics , operating system

The Nobel Prize was given to Robert C. Merton and Myron S. Scholes for discovering a new method for determining the value of an option. This is known as the Black-Merton-Scholes option pricing formula. The purpose of this essay is to explain why the Black-Merton-Scholes option pricing formula is so important to the finance profession, the economics profession, the financial industry, and society at large. This is done by studying the history of the formula's development, the economic logic underlying the formula's derivation, and the formula's ramifications for the various professions.

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