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Stephen Ross (economist)
Encyclopedia
Stephen Alan "Steve" Ross is the inaugural Franco Modigliani
Professor of Financial Economics
at the MIT Sloan School of Management
. He is known for initiating several important theories and models in financial economics
. He is a widely published author in finance and economics, and is coauthor of one of the best-selling Corporate Finance
texts.
Ross is best known for the development of the arbitrage pricing theory
(mid-1970s) as well as for his role in developing the binomial options pricing model
(1979; also known as the Cox–Ross–Rubinstein model). He was an initiator of the fundamental financial concept of risk-neutral pricing. In 1985 he contributed to the creation of the Cox–Ingersoll–Ross model for interest rate dynamics. Such theories have become an important part of the paradigm known as neoclassical finance
.
Ross served as President of the American Finance Association
in 1988. He was named International Association of Financial Engineers
' Financial Engineer of the Year in 1996.
He gave the inaugural lecture of the Princeton Lectures in Finance, sponsored by the Bendheim Center for Finance of Princeton University
, in 2001. It became a book in 2004, defending neoclassical finance
, and such notions as the efficiency
and rationality
of markets, against critics, especially those who describe their work as behavioral finance
.
He received his B.S. with honors from Caltech in 1965 where he majored in physics, and his Ph.D. in economics from Harvard in 1970, and has taught at the University of Pennsylvania
, Yale School of Management
, and MIT.
Franco Modigliani
Franco Modigliani was an Italian economist at the MIT Sloan School of Management and MIT Department of Economics, and winner of the Nobel Memorial Prize in Economics in 1985.-Life and career:...
Professor of Financial Economics
Financial economics
Financial Economics is the branch of economics concerned with "the allocation and deployment of economic resources, both spatially and across time, in an uncertain environment"....
at the MIT Sloan School of Management
MIT Sloan School of Management
The MIT Sloan School of Management is the business school of the Massachusetts Institute of Technology, in Cambridge, Massachusetts....
. He is known for initiating several important theories and models in financial economics
Financial economics
Financial Economics is the branch of economics concerned with "the allocation and deployment of economic resources, both spatially and across time, in an uncertain environment"....
. He is a widely published author in finance and economics, and is coauthor of one of the best-selling Corporate Finance
Corporate finance
Corporate finance is the area of finance dealing with monetary decisions that business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize shareholder value while managing the firm's financial risks...
texts.
Ross is best known for the development of the arbitrage pricing theory
Arbitrage pricing theory
In finance, arbitrage pricing theory is a general theory of asset pricing that holds that the expected return of a financial asset can be modeled as a linear function of various macro-economic factors or theoretical market indices, where sensitivity to changes in each factor is represented by a...
(mid-1970s) as well as for his role in developing the binomial options pricing model
Binomial options pricing model
In finance, the binomial options pricing model provides a generalizable numerical method for the valuation of options. The binomial model was first proposed by Cox, Ross and Rubinstein in 1979. Essentially, the model uses a “discrete-time” model of the varying price over time of the underlying...
(1979; also known as the Cox–Ross–Rubinstein model). He was an initiator of the fundamental financial concept of risk-neutral pricing. In 1985 he contributed to the creation of the Cox–Ingersoll–Ross model for interest rate dynamics. Such theories have become an important part of the paradigm known as neoclassical finance
Neoclassical finance
Neoclassical finance is a school of thought that has developed since the mid 1960s, building on earlier developments such as the Austrian School of economics but cross-fertilizing with atomic physics and other heavily quantitative disciplines.-References:...
.
Ross served as President of the American Finance Association
American Finance Association
The American Finance Association is an academic organization whose focus is the study and promotion of knowledge of financial economics. It was formed in 1939...
in 1988. He was named International Association of Financial Engineers
International Association of Financial Engineers
The International Association of Financial Engineers is a non-profit professional society dedicated to fostering the field of financial engineering. The IAFE hosts several panel discussions throughout the year to discuss the issues that affect the industry from both academic and professional angles...
' Financial Engineer of the Year in 1996.
He gave the inaugural lecture of the Princeton Lectures in Finance, sponsored by the Bendheim Center for Finance of Princeton University
Princeton University
Princeton University is a private research university located in Princeton, New Jersey, United States. The school is one of the eight universities of the Ivy League, and is one of the nine Colonial Colleges founded before the American Revolution....
, in 2001. It became a book in 2004, defending neoclassical finance
Neoclassical finance
Neoclassical finance is a school of thought that has developed since the mid 1960s, building on earlier developments such as the Austrian School of economics but cross-fertilizing with atomic physics and other heavily quantitative disciplines.-References:...
, and such notions as the efficiency
Efficient market hypothesis
In finance, the efficient-market hypothesis asserts that financial markets are "informationally efficient". That is, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made.There are...
and rationality
Rationality
In philosophy, rationality is the exercise of reason. It is the manner in which people derive conclusions when considering things deliberately. It also refers to the conformity of one's beliefs with one's reasons for belief, or with one's actions with one's reasons for action...
of markets, against critics, especially those who describe their work as behavioral finance
Behavioral finance
Behavioral economics and its related area of study, behavioral finance, use social, cognitive and emotional factors in understanding the economic decisions of individuals and institutions performing economic functions, including consumers, borrowers and investors, and their effects on market...
.
He received his B.S. with honors from Caltech in 1965 where he majored in physics, and his Ph.D. in economics from Harvard in 1970, and has taught at the University of Pennsylvania
University of Pennsylvania
The University of Pennsylvania is a private, Ivy League university located in Philadelphia, Pennsylvania, United States. Penn is the fourth-oldest institution of higher education in the United States,Penn is the fourth-oldest using the founding dates claimed by each institution...
, Yale School of Management
Yale School of Management
The Yale School of Management is the graduate business school of Yale University and is located on Hillhouse Avenue in New Haven, Connecticut, United States. The School offers Master of Business Administration and Ph.D. degree programs. As of January 2011, 454 students were enrolled in its MBA...
, and MIT.