Skip to content
Nobel Jews
Portrait of Myron Scholes
Photo: The original uploader was Nobellaureatesphotographer at English Wikipedia., Transferred from en.wikipedia to Commons by Homonihilis using CommonsHelper. · CC BY-SA 3.0 via Wikimedia Commons

Sveriges Riksbank Prize in Economic Sciences · 1997

Myron Scholes

With Fischer Black he found how to price an option, giving firms and investors a common way to measure and shed financial risk.

The Nobel citation: “for a new method to determine the value of derivatives”
Born
July 1, 1941, Timmins, ON, Canada
Shared with
Robert C. Merton
Affiliation at the time
Long Term Capital Management, USA

Economics prize

1997

Shared with 1 other laureate.

Age that year

56years

Born in 1941.

Headline credited impact

$42–147billion in economic value

Extra US economic output from banks' and firms' use of derivatives to manage risk. How it was built

Sources cited

22

Fact-checked September 24, 2026.

  • Scarred corneas made reading hard from his teens until a transplant at 26, so he learned to solve problems in his head and to listen closely.
  • The Journal of Political Economy rejected the first Black-Scholes paper without sending it for review. It ran in 1973 after Merton Miller and Eugene Fama stepped in.
  • In 1968 he urged Wells Fargo Bank to offer clients passive investing, which he later called the forerunner of index funds.
  • Texas Instruments sold a Black-Scholes calculator in 1977. When he asked for royalties, or at least a calculator, it suggested he buy one. He never did.
  • Hired as a junior programmer at Chicago with no coding experience, he found on day three that he was the only "programmer" left.

The breakthrough

The Black-Scholes formula: pricing an option by hedging away its risk

An option is a contract that gives you the right, but not the duty, to buy or sell something, such as a share of stock, at a fixed price by a set date. For about 70 years nobody could price one properly, because the answer seemed to depend on how fast each investor expected the stock to grow and how much risk they would accept, and neither can be measured. Starting in 1969, Scholes, then a young MIT professor, and Fischer Black, a consultant, attacked the problem together. Their key idea was hedging. If you own a stock and sell just the right number of options on it, small moves in the stock price cancel out. A mix with no risk must earn the same as a safe government bond, or traders could make free money. That one condition produced an equation, and its solution, published in 1973, is the Black-Scholes formula. To their surprise, the stock's expected growth rate dropped out. The price depends only on things you can observe or estimate: the share price, the strike price, the time left, the interest rate and how much the stock swings. It is like pricing a fruit smoothie from the cost of its fruit: you never need to know how much anyone enjoys smoothies. Black and Scholes also saw that a company's shares are themselves an option, because shareholders can repay the firm's debts and keep it, or walk away and leave it to the lenders. Robert Merton supplied a more general proof and many extensions.[3],[4],[5]

“I wish that Fischer Black were alive today to share this honor with us.”
Myron Scholes, From his Nobel lecture, 9 December 1997. Black, his co-author on the option-pricing formula, had died in 1995, and the prize is not awarded after death.[4]

What it meant for humanity

Options and other derivatives let a person or firm hand a risk to someone more willing to carry it. The Nobel committee's examples show why that matters: a firm expecting future income can make sure its profit stays above a set level, or insure itself against losses beyond a set level. That only works if the contracts are priced correctly, and before 1973 nobody knew how to do that.

The timing was striking. The Chicago Board Options Exchange opened in April 1973, almost at the same moment the Black-Scholes paper appeared in print. Within a year many clearing firms used the model's hedge ratios to measure their traders' risk, and in 1977 Texas Instruments sold a handheld calculator that computed it. Scholes argued that the model made trading cheaper, which narrowed the gap between buying and selling prices and let traders support larger markets. The face value of stock index options outstanding, which overstates the money actually at risk, grew tenfold, from $37.8 billion at the end of 1986 to $380.2 billion ten years later. By 1997, the committee said, thousands of traders and investors used the formula every day, and banks used the method to design products fitted to their customers' risks. The same reasoning values loan guarantees, insurance and the flexibility to switch fuels or reopen a mine.

Scholes shaped investing in other ways too. In 1968 he recommended that Wells Fargo Bank offer passive investment strategies, an early step toward index funds. At Chicago he helped build large databases of daily stock prices at the Center for Research in Security Prices. At Stanford he developed, with Mark Wolfson, a theory of tax planning that became a textbook, now in its fifth edition.

  • The Chicago Board Options Exchange opened in April 1973, the same spring the Black-Scholes paper was published. By 1977 Texas Instruments sold a calculator programmed with the model.[4],[15]
  • Face value of stock index options grew from $37.8 billion in 1986 to $380.2 billion in 1996, though face values far exceed the money actually at risk.[4]
  • In 1997 the Nobel committee said thousands of traders and investors used the formula every day, and that banks used the method to tailor instruments to their customers' risks.[3]
  • Treating shares, debts, guarantees and insurance as options let the same method value corporate liabilities, insurance contracts and flexible investment projects.[3],[5]
  • A 2014 Milken Institute study, supported by exchange operator CME Group, estimated that derivatives use by US banks and firms left real GDP 1.1 percent ($149.5 billion) higher and employment 530,400 higher by 2012.[18]
  • In 1968 he advised Wells Fargo Bank to offer passive investment strategies to its clients, which he described as the forerunner of index funds.[4]

Impact in numbers

Scholes's main legacy is a tool: a way to put a price on any contract whose payoff depends on something uncertain, and a recipe for hedging it. That tool runs through options exchanges, bank risk systems, corporate finance and the valuation of guarantees and insurance. Its value to society is hard to separate from the harms of derivatives misuse, including the 1998 collapse of his own hedge fund and the 2008 crisis. We record one low-confidence number, shared with Robert Merton: extra US economic output linked to banks' and firms' use of derivatives, based on a single industry-funded 2014 study. We credit Scholes with only 3 percent, because futures, swaps and forwards owe little to option-pricing theory, and he shares credit for that theory with Merton and the late Fischer Black. We do not subtract crisis losses, which cannot be tied to his work with any precision, so treat the figure as a rough, one-sided indicator.

EconomyTechnology

Each number is the laureate’s credited share of a real-world outcome, cumulative to 2025. The whole outcome, the share of credit, and the reasoning are shown so you can check the arithmetic. Outcomes shared with other laureates are counted once on the impact page.

  • Low confidenceRippleModeledEconomy

    Extra US economic output from banks' and firms' use of derivatives to manage risk

    $42–147

    billion in economic value, credited share

    That is 3% of $1.4–4.9 trillion in economic value since 1973.

    How this number was built

    Milken Institute (2014, CME Group-funded): derivatives use by US banks and firms raised real GDP ~$3.7B a quarter in 2003-12 (models range $1.4-8.1B), leaving 2012 GDP 1.1% ($149.5B, chained 2005 $) higher: a yearly level, not a total. 2003-12 ramp: ~$0.75T x 1.538 (GDP deflator 81.56 in 2005, 125.43 in 2024) = $1.15T. 2013-25: OCC bank notionals were $186.5-218.7T in late 2024 vs $223T in 2012, when it tied declines to trade compression, so we assume use and the gain persisted: 2012 gain ($230B in 2024 $) x 0.84 x 13 yr = $2.5T; central $3.6T. High: 1.1% of each year's real GDP (BEA) in 2024 $ = $3.7T; total ~$4.9T (Milken's $8.1B top not used). Low: central x 0.38 (their $1.4B main regression estimate) = $1.4T. Pre-2003, non-US gains omitted; crisis losses not netted. Share 0.03: option pricing gets ~10% (swaps, futures, forwards use it little), split among Scholes, Merton and Black.[3],[4],[18],[19],[20],[21],[22]

    Sources: Milken Institute; NobelPrize.org (Royal Swedish Academy of Sciences); NobelPrize.org; Office of the Comptroller of the Currency; Office of the Comptroller of the Currency; FRED, Federal Reserve Bank of St. Louis (source: US Bureau of Economic Analysis); FRED, Federal Reserve Bank of St. Louis (source: US Bureau of Economic Analysis)

The double edge

Scholes's record includes one of the best-known failures in modern finance. In 1994 he co-founded Long-Term Capital Management, a hedge fund that relied on mathematical models and heavy borrowing. After Russia defaulted in August 1998, the fund lost 44 percent of its value in one month. The New York Fed brought together 14 banks and brokers, which put in $3.6 billion to avoid a fire sale that could have shaken markets. The Fed put up none of its own money. In 2004 a federal court ruled that a tax deal the fund used in 1997, which Scholes was mainly in charge of, lacked economic substance. It upheld the IRS's denial of $106 million in claimed losses, plus penalties. More broadly, critics such as the mathematician Ian Stewart argue that faith in the Black-Scholes model encouraged banks to trade ever more complex derivatives. The US Financial Crisis Inquiry Commission found that over-the-counter derivatives contributed significantly to the 2008 crisis, though those products relied on other models too. The basic formula also assumes smooth price moves, while real markets crash far more often than it predicts.

  • Major

    The collapse of Long-Term Capital Management

    Scholes co-founded LTCM in 1994 with John Meriwether, Robert Merton and others. By late 1997 it held about $30 of debt for every $1 of capital. After Russia's August 1998 default it lost 44 percent that month. On 23 September 1998, 14 banks and brokers, brought together by the New York Fed, invested $3.6 billion so the fund could be wound down in an orderly way. The Fed lent none of its own money.[2],[8],[11]

  • Moderate

    A tax shelter the courts rejected

    In 2004 a US district court found that a 1997 LTCM deal lacked economic substance. Preferred stock worth about $4 million, routed through a Turks and Caicos company, carried a claimed tax basis of $400 million. The court upheld the IRS's denial of $106 million in claimed losses and 40 and 20 percent penalties. It found that Scholes was the principal mainly in charge of the deal.[12]

  • Moderate

    Derivatives, model risk and the 2008 crisis

    Ian Stewart argues that bankers treated the Black-Scholes equation as a talisman and traded complex products whose risk became hard to see. He notes that the 1987 crash was a fall the model treats as almost impossible. The Financial Crisis Inquiry Commission found that over-the-counter derivatives contributed significantly to the 2008 crisis. Those products relied on other models too, so the link to Scholes's work is indirect.[16],[17]

Against the odds

Scholes did not face the persecution that shaped many laureates' lives, and his Nobel autobiography mentions no antisemitism. The country he was born into was not free of it. In the 1920s and 1930s Jews across Canada faced job discrimination and university quotas. In Ontario they were kept out of senior posts in banks and schools, and some resorts on Lake Ontario put up signs saying Jews were not wanted. In 1933 a baseball game in Toronto turned into a riot, with newspapers reporting shouts of "Heil Hitler" in the crowd. Canada also admitted only about 8,000 Jewish immigrants from 1933 to 1945, while Jews in Europe were being persecuted and then murdered. Many earlier Jewish immigrants had skipped unwelcoming cities and headed to northern towns such as Timmins, where Scholes was born in 1941. His own hardships were personal. His mother, who had built a business and hoped he would work in her brother's publishing firm, died of cancer a few days after he turned 16. Scar tissue on his corneas made reading for long stretches hard until a transplant at 26. He learned to think problems through in his head and to listen closely, habits he credited for his later work. He stayed in Hamilton for university, then left for Chicago, where he found his calling.

  • —

    Discrimination

    In the 1920s and 1930s Canadian Jews faced job discrimination and university admission quotas. In Ontario, Jews were kept out of positions of authority in banks, schools and professional bodies, and resorts along Lake Ontario posted signs such as "No Jews Wanted."[10]

  • —

    Discrimination

    Canada admitted only about 8,000 Jews among roughly 150,000 immigrants from 1933 to 1945. Earlier Jewish immigrants had often bypassed big cities, which were hostile and short of jobs, for northern towns such as Timmins.[9],[10]

  • 1957

    Other

    His mother developed cancer soon after the family moved to Hamilton and died a few days after his 16th birthday. He stayed in Hamilton for university because of her death.[2]

  • —

    Other

    As a teenager he developed scar tissue on both corneas, which made it hard to read for long periods. A cornea transplant at 26 greatly improved his sight.[2],[8],[14]

Jewish background

One Jewish parentRelationship to Jewish identity not documented

Scholes was born in 1941 into a Jewish family in Timmins, a gold-mining town in northern Ontario whose small Jewish community once had its own synagogue. The Encyclopaedia Judaica has an entry on him, and in 2017 The Canadian Jewish News named him as one of five Canadian Jewish Nobel laureates, and the only one not from Montreal. His Nobel autobiography says his father was a dentist who moved to Timmins during the Depression and his mother ran small department stores with her uncle, but it does not mention religion. The sources we found do not name his parents or trace their origins, and none describes his own religious practice or views on Jewish identity.[2],[6],[7],[8],[9]

Key dates

  1. July 1, 1941

    Born in Timmins, Ontario, where his father had moved during the Depression to practice dentistry.[1],[2]

  2. 1951

    At age ten, moves with his family 500 miles south to Hamilton, Ontario.[2],[7]

  3. 1957

    His mother dies of cancer a few days after his 16th birthday.[2]

  4. 1962

    Graduates in economics from McMaster University and starts graduate school at the University of Chicago.[2],[6]

  5. 1964

    Earns an MBA at Chicago, having discovered economic research through a summer job programming computers for professors.[2],[13]

  6. 1968

    Nearly done with his Chicago PhD, becomes an assistant professor of finance at MIT's Sloan School and meets Fischer Black.[2],[4]

  7. 1970

    Black and Scholes send their option-pricing paper, in a version dated October 1970, to the Journal of Political Economy, which rejects it without review.[4],[15]

  8. 1973

    Publishes The Pricing of Options and Corporate Liabilities with Black, as the Chicago Board Options Exchange opens. Returns to Chicago's business school.[2],[3],[4],[15]

  9. 1983

    Joins Stanford's business and law schools as a permanent faculty member, after visiting in 1981.[2],[13]

  10. 1990

    Becomes a consultant to Salomon Brothers, later co-heading its fixed-income derivatives sales and trading group.[2]

  11. February 1994

    Long-Term Capital Management, the hedge fund he co-founded with John Meriwether and others, is launched.[2],[11]

  12. October 14, 1997

    Awarded the Nobel Memorial Prize in Economic Sciences with Robert C. Merton for a new method to value derivatives.[1],[3]

  13. September 23, 1998

    Fourteen banks and brokers, brought together by the New York Fed, invest $3.6 billion to wind down the failing LTCM.[11]

  14. August 27, 2004

    A federal court rules that a 1997 LTCM tax deal he led lacked economic substance and upholds IRS penalties.[12]

Sources

  1. 1.Myron S. Scholes - Facts · NobelPrize.org (Nobel Prize Outreach)
  2. 2.Myron S. Scholes - Biographical · NobelPrize.org (from Les Prix Nobel 1997), 1997
  3. 3.The Prize in Economic Sciences 1997 - Press release · NobelPrize.org (Royal Swedish Academy of Sciences), 1997
  4. 4.Derivatives in a Dynamic Environment (Nobel Lecture, 9 December 1997) · NobelPrize.org, 1997
  5. 5.Additional background material on the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel 1997 (Advanced information) · NobelPrize.org (Royal Swedish Academy of Sciences), 1997
  6. 6.Scholes, Myron S. (Dawn Des Jardins, Encyclopaedia Judaica, 2nd ed.) · Encyclopedia.com (Gale), 2007
  7. 7.Canadian Jewish Nobel winners made their mark on the world · The Canadian Jewish News (Wayback Machine snapshot), 2017
  8. 8.Myron Scholes · Wikipedia
  9. 9.On a Jewish tour of northern Ontario, small spaces convey decades of history (Robert Walker) · Jewish Telegraphic Agency, 2021
  10. 10.Brief History of Antisemitism in Canada · Montreal Holocaust Museum, 2018
  11. 11.Near Failure of Long-Term Capital Management (Michael Fleming and Weiling Liu) · Federal Reserve History (Federal Reserve System)
  12. 12.Long Term Capital Holdings et al. v. United States: Findings and Opinion (D. Conn., 27 August 2004) · US District Court, District of Connecticut (copy hosted by US Department of Justice), 2004
  13. 13.Myron S. Scholes - Faculty profile · Stanford Graduate School of Business
  14. 14.Myron S. Scholes - Nobel laureates · University of Chicago Booth School of Business
  15. 15.Myron S. Scholes (1941- ), The Concise Encyclopedia of Economics · Econlib (Liberty Fund), 2008
  16. 16.The mathematical equation that caused the banks to crash (Ian Stewart) · The Observer / The Guardian, 2012
  17. 17.Conclusions of the Financial Crisis Inquiry Commission (The Financial Crisis Inquiry Report) · Financial Crisis Inquiry Commission (copy hosted by Stanford Law School), 2011
  18. 18.Deriving the Economic Impact of Derivatives: Growth Through Risk Management (Prabha, Savard and Wickramarachi) · Milken Institute, 2014
  19. 19.Quarterly Report on Bank Trading and Derivatives Activities, Fourth Quarter 2024 · Office of the Comptroller of the Currency, 2025
  20. 20.OCC Reports Fourth Quarter 2012 Trading Revenue of $4.4 Billion (news release 2013-48) · Office of the Comptroller of the Currency, 2013
  21. 21.Real Gross Domestic Product (GDPCA), annual, chained 2017 dollars · FRED, Federal Reserve Bank of St. Louis (source: US Bureau of Economic Analysis)
  22. 22.Gross Domestic Product: Implicit Price Deflator (A191RD3A086NBEA), annual, 2017=100 · FRED, Federal Reserve Bank of St. Louis (source: US Bureau of Economic Analysis)

Fact-checked on September 24, 2026 by a separate AI fact-checking pass that re-opened the sources, with 11 corrections made. How we check

Suggest a correction