Myron Samuel Scholes ( SHOHLZ; born July 1, 1941) is a Canadian–American financial economist. Scholes is the Frank E. Buck Professor of Finance, Emeritus, at the Stanford Graduate School of Business, Nobel Laureate in Economic Sciences, and co-originator of the Black–Scholes options pricing model. This mathematical model, developed with Fischer Black, revolutionized finance by providing a systematic way to value options through the elimination of risk via dynamic hedging. In 1997, Scholes was awarded the Nobel Memorial Prize in Economic Sciences (shared with Robert C. Merton) for a "new method to determine the value of derivatives." The Royal Swedish Academy of Sciences noted that their work made it possible to observe the value of options in a scientific manner, effectively creating a foundation for the rapid growth of financial markets and the management of economic risk across the globe. Scholes is currently the Chief Investment Strategist at Janus Henderson. Previously he served as the chairman of Platinum Grove Asset Management and on the Dimensional Fund Advisors board of directors, American Century Mutual Fund board of directors, chairman of the Board of Economic Advisers of Stamos Capital Partners, and the Cutwater Advisory Board. He was a principal and limited partner at Long-Term Capital Management (LTCM), a highly leveraged hedge fund that collapsed in 1998, and a managing director at Salomon Brothers. Other positions Scholes held include the Edward Eagle brown Professor of Finance at the University of Chicago, senior research fellow at the Hoover Institution, director of the Center for Research in Security Prices, and professor of finance at MIT's Sloan School of Management. Scholes earned his PhD at the University of Chicago.
Biography
Early life and education Scholes was born to a Jewish family on July 1, 1941, in Timmins, Ontario, where his family had moved during the Great Depression. In 1951 the family moved to Hamilton, Ontario. Scholes was a good student although fighting with his impaired vision starting with his teens until finally getting an operation when he was twenty-six. Through his family, he became interested in economics early, as he helped with his uncles' businesses and his parents helped him open an account for investing in the stock market while he was in high school. After his mother died from cancer, Scholes remained in Hamilton for undergraduate studies and earned a Bachelor's degree in economics from McMaster University in 1962. One of his professors at McMaster introduced him to the works of George Stigler and Milton Friedman, two University of Chicago economists who would later both win Nobel prizes in economics. After receiving his B.A. he decided to enroll in graduate studies in economics at the University of Chicago. Here, Scholes was a colleague with Michael Jensen and Richard Roll, and he had the opportunity to study with Eugene Fama and Merton Miller, researchers who were developing the relatively new field of financial economics. He earned his MBA at the Booth School of Business in 1964 and his Ph.D. in 1969 with a dissertation written under the supervision of Eugene Fama and Merton Miller.
Academic career In 1968, after finishing his dissertation, Scholes took an academic position at the MIT Sloan School of Management. Here he met Fischer Black, who was a consultant for Arthur D. Little at the time, and Robert C. Merton, who joined MIT in 1970. For the following years Scholes, Black and Merton undertook groundbreaking research in asset pricing, including the work on their famous option pricing model. At the same time, Scholes continued collaborating with Merton Miller and Michael Jensen. In 1973 he decided to move to the University of Chicago Booth School of Business, looking forward to work closely with Eugene Fama, Merton Miller and Fischer Black, who had taken his first academic position at Chicago in 1972. While at Chicago, Scholes also started working closely with the Center for Research in Security Prices, helping to develop and analyze its famous database of high frequency stock market data. In 1981 he moved to Stanford University, where he remained until he retired from teaching in 1996. Since then he holds the position of Frank E. Buck Professor of Finance Emeritus at Stanford. While at Stanford his research interest concentrated on the economics of investment banking and tax planning in corporate finance.
Economic contributions
Theoretical Breakthrough: Solving the Warrant Problem (1973) Prior to the 1973 publication of "The Pricing of Options and Corporate Liabilities," researchers struggled to value options because it was assumed the price depended on the expected return of the underlying stock. Scholes and Black's breakthrough was the realization that in a continuous-time market, a riskless hedge can be maintained between the option and the stock. This led to the "Risk-Neutral" insight: the expected return of the stock drops out of the equation, replaced by the risk-free rate.
The Black–Scholes Formula (1973) Scholes is most famous for the Black–Scholes formula, which provides a theoretical estimate of the price of European-style options:
The Black–Scholes Formula
C = S t N ( d 1 ) − K e − r ( T − t ) N ( d 2 ) {\displaystyle C=S_{t}N(d_{1})-Ke^{-r(T-t)}N(d_{2})}
where
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