, Volume 32, Issue 6, pp 259–263 | Cite as

Nobel contingencies

  • Beate Reszat
Financial Derivatives


This year, the Royal Swedish Academy of Sciences awarded the Nobel Prize in economics to Robert C. Merton of Harvard University and Myron S. Scholes of Stanford University for a pioneering formula for the valuation of stock options. The laureates developed their method in the early seventies in close collaboration with Fischer Black, who died in 1995. While sometimes the Academy's decision is greeted with harsh criticism, this time there seems to be nearly unanimous agreement on the winners' merits. Special emphasis is put on their work's practical use and its wide applicability. The praise must sound strange to those remembering recent losses and failures in derivatives trading. This raises the question of the rationale behind the Stockholm decision and the signals it is sending to the markets in a time of growing uncertainties and instabilities.


Call Option Stock Option Implied Volatility Strike Price Underlying Asset 
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  1. 1.
    Compare, for example, M. Goldstein, D. Folkerts-Landau, P. Garber, L. Rojas-Suárez und M. Spencer: International Capital Markets, Part I.: Exchange Rate Management and International Capital Flows, Washington, DC 1993.Google Scholar
  2. 2.
    The decisive paper was: F. Black, M. Scholes: The Pricing of Options and Corporate Liabilities, in: Journal of Political Economy, Vol. 81, 1973, pp. 637–654.Google Scholar
  3. 3.
    For the following, see the background information given by the Academy via the internet under: Scholar
  4. 4.
    Compare for the details also: N. Strong, M. Walker: Information and Capital Markets, Oxford 1987, pp. 68–70.Google Scholar
  5. 6.
    The example is taken from R. Goebel: Ansätze zur Risikomessung und-steuerung des Derivategeschäfts in Kreditinstituten und Nichtbanken, in: A. Bertuch-Samuels und W. Störmann (Hrsg.): Derivate Finanzinstrumente: Nutzen und Risiken, Stuttgart 1995, pp. 65–67.Google Scholar
  6. 7.
    A detailed description of the case can be found in: J. Rawnsley: Going for Broke, London 1996. For this and other cases cf. also B. Reszat: The Japanese Foreign Exchange Market, London 1997.Google Scholar
  7. 8.
    See John Gapper: When the Smile is Wiped off, in: The Financial Times, 9 March 1997.Google Scholar
  8. 9.
    Compare in greater detail: Hans Peter Steinbrenner: Bewertungen im professionellen Optionsgeschäft, Stuttgart 1996, pp. 290–292.Google Scholar
  9. 10.
    See in greater detail B. Reszat: Sources of Increasing Systemic Risk in International Financial Markets, in: INTERECONOMICS, September/October 1997, pp. 4–5, and the references cited there.Google Scholar

Copyright information

© HWWA and Springer-Verlag 1997

Authors and Affiliations

  • Beate Reszat
    • 1
  1. 1.Hamburg Institute for Economic Research (HWWA)HamburgGermany

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