Scholes, Myron Samuel (1941-…), a Canadian-born economist, now a U.S. citizen, was awarded the Nobel Prize in economic sciences in 1997. Scholes and Robert C. Merton won the prize for their work in valuing financial assets on the stock market. Scholes devised, with the American economist Fischer Black, the Black-Scholes model for determining the value of certain types of financial resources or assets known as derivatives. These assets can play an important part in economic finance. Thousands of traders and investors in the stock market used the Black-Scholes formula on a day-to-day basis. After the finance crisis that began in 2007, however, some experts believed that the mathematical models meant to reduce risk might actually increase risk in the market, because the models created a false sense of security for investment firms and traders.
Born in Timmins, Ontario, Canada on July 1, 1941. Scholes gained his Ph.D. from the University of Chicago. He taught at the University of Chicago Business School and at the Massachusetts Institute of Technology (MIT) at Cambridge. Scholes became professor of finance at the Graduate School of Business at Chicago in 1975 and became professor at Stanford University (in California) in 1981. He retired from Stanford in 1996.
In 1994, Scholes and Merton became partners in a hedge fund—a high-risk investment company open to a limited number of investors. This hedge fund, Long-Term Capital Management, lost a large amount of money because of turmoil in the Russian economy in 1998. The Federal Reserve Bank of New York then interceded on the firm’s behalf with its creditor banks. In 2000, Long-Term Capital Management paid back the more than 3 billion dollars it was loaned during the collapse of 1998. The firm then closed.
See also Investment; Investment banking; Money; Stock exchange.
