May 24, 2024

The Nathan and Beatrice Keyfitz Lectures in Mathematics and the Social Sciences

Thursday April 15, 2010
6:00 p.m.
Robert C. Merton, Harvard Business School
Observations on the Science of Finance in the Practice of Finance: Past, Present, and Future

Bahen Center (BA), Room 1160


These lectures will be of interest to the university community as well as to individuals involved in public administration, economics, health policy, social and political science. The purpose of the series is both to inform the public of some of the ways quantitative methods are being used to design solutions to societal problems, and to encourage dialogue between mathematical and social scientists. All lectures are open to the public and everyone is welcome.

Observations on the Science of Finance in the Practice of Finance:
Past, Present, and Future

For several decades, financial innovation has been a central force driving the global financial system toward greater efficiency with considerable economic benefit having accrued from those changes. The scientific breakthroughs in finance in this period both shaped, and were shaped by, the extraordinary innovations in finance practice that expanded opportunities for risk sharing, lowering transactions costs, and reducing information and agency costs. Today no major financial institution in the world, including central banks, can function without the computer-based mathematical models of modern financial science and the myriad of derivative contracts and markets used to extract price- and risk-discovery information as well as execute risk-transfer transactions. But also today, we are faced with the effects of a global financial crisis of a magnitude and scope not seen in nearly eighty years, which some attribute to the changes in the financial system brought about by financial innovation, derivatives, and mathematical models. The lecture will apply the tools of financial science to analyze and offer observations on the structural elements of financial crisis, on needed financial regulatory changes, and on the important role of financial innovation and science in the future beyond the crisis.

Robert C. Merton is currently the John and Natty McArthur University Professor at the Harvard Business School. After receiving a Ph.D. in Economics from Massachusetts Institute of Technology in 1970, he served on the finance faculty of MIT's Sloan School of Management until 1988 when he moved to Harvard. Professor Merton is past President of the American Finance Association, a member of the National Academy of Sciences, and a Fellow of the American Academy of Arts and Sciences. He received the Alfred Nobel Memorial Prize in the Economic Sciences in 1997.

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