Robert C. Merton, winner of the 1997 Nobel Prize in economics, will rejoin the faculty of the Massachusetts of Institute of Technology’s Sloan School of Management to focus on training students in quantitative finance.
Merton has been at the Harvard Business School for 22 years where he was the John and Natty McArthur University Professor until his retirement at the end of this month. He will retain his association with Harvard, as an emeritus professor.
Merton, 65, will teach in Sloan’s Master of Finance program, which was launched last year, MIT said in a press release.
Only in its second year, the MIT Master in Finance program saw a five-fold increase in number of applications this year. The program received 950 applications for the 2010 incoming class, up from 175 the year before. The one-year program costs $72,000 in tuition. According to its website, the program seeks to address the broader area of finance, instead of financial engineering, a narrow area which suggests "quants and traders only". With a brand new building recently added, the university is studying the viability of expanding the MFin program's class size from 60 in the near future.
Reached by phone in Boston, Andrew Lo - Director, MIT Laboratory for Financial Engineering told Quant Network that Merton will teach a newly designed course which is currently under development. His return secured only days earlier, Merton will help MIT establish a financial research center where government agencies and private companies can tap into the university's vast technical resource and finance expertise, said Lo.
In addition to teaching and research, Merton will be involved in leading conferences and executive education seminars aimed at providing sophisticated financial training for senior managers and regulators. He will take up his new role on July 1.
In 1997, Merton was awarded the Nobel Memorial Prize in Economic Sciences with Myron Scholes (of the famed Black-Scholes formula) for their work on stock options. Together with Myron Scholes, Merton was among the board of directors of Long-Term Capital Management (LTCM), a hedge fund that failed spectacularly in 1998 after losing $4.6 billion in less than four months.
“We need people in the private sector, but also in finance ministries, and central banks who understand how the system works, and how to improve it,” said Merton. “We need people with strong quantitative skills who understand complex instruments and how risk is transferred; we need people who know how to build models, but who also have the breadth of finance knowledge and judgment to make sound abstractions and know well the models’ limitations, the art of the science. MIT, because of its history, its culture, and its approach, is the ideal place to take up this task of educating the next generation, and to do it on a large enough scale to have a macro effect.”
Merton said he will also continue his work on the development of a next-generation pension system. His Nobel Prize-winning work, which he began at MIT, where he earned his Ph.D. and was on the faculty for 18 years before moving to Harvard, focused on a method for determining the value of derivatives.