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Lot #134
Robert C. Merton AMS of Black-Scholes Formula

Merton pens the celebrated Black-Scholes model on receipt of the Nobel Prize in Economics

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Estimate: $30000+
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Merton pens the celebrated Black-Scholes model on receipt of the Nobel Prize in Economics

Incredibly rare autograph manuscript signed, "Robert C. Merton," one page, 5.75 x 8.25, Stockholm Grand Hotel letterhead, December 1997. Merton writes out the celebrated Black-Scholes (or Black-Scholes-Merton) formula for derivatives pricing, the basis for many of the great fortunes in finance. He adds an inscription at the top, "For Dan Maran," and "Nobel Week" notation below—Merton wrote this manuscript while he was in Stockholm for the Nobel Prize ceremony. In very fine condition.

Merton’s collaborator, Myron Scholes, characterized the formula as 'an equation that prices options on common stock and provides a methodology to value options on securities generally. It can be used to measure risk and transfer risk.'

Merton and Scholes shared the 1997 Nobel Memorial Prize in Economic Sciences 'for a new method to determine the value of derivatives' (Black was not eligible, having died in 1995). 'Such rapid and widespread application of a theoretical result was new to economics,' the prize committee wrote. Thousands of traders and investors now use the formula every day, allowing businesses and individuals to hedge risks in an unprecedented way.

The insights of this model laid the foundation of modern trading in options and other derivatives. It thus has been the basis for the rise of numerous great fortunes in recent years. Black-Scholes 'underpinned massive economic growth' so that the 'international financial system was trading derivatives valued at one quadrillion dollars per year' by 2007, with the Black-Scholes equation being the 'mathematical justification for the trading' (Ian Stewart, In Pursuit of the Unknown: 17 Equations That Changed the World).

We find no other manuscripts of this landmark formula in the auction records or in the market. This manuscript, written when Merton received the Nobel Prize, is worthy of any great collection in economics and finance.

Auction Info

  • Auction Title: Fine Autograph and Artifacts Featuring Classical Music
  • Dates: #661 - Ended April 12, 2023