Some thinkers fundamentally change the basis of our thought.
Among them are Harvard Professor Robert C. Merton and Stanford Professor Myron S. Scholes, recipients of the 1997 Nobel Prize in Economic Sciences for their work in creating a new way of determining the valuation of derivatives. Merton helped develop a new formula for pricing stock options with Myron Scholes and the now deceased Fisher Black, which was published separately by both authors in 1973. The formula computes the price of an option from the value of the underlying stock, the exercise price of the option, its time to expiration, the risk-free interest rate, and the variability of the stock's price. The work of Merton and Scholes provides a method of managing the risks inherent in financial markets. This groundbreaking method has broad applications in other areas of global finance.