Stephen Alan "Steve" Ross (February 3, 1944 – March 3, 2017) was the inaugural

Franco Modigliani Franco Modigliani (18 June 1918 – 25 September 2003) was an Italian-American economist and the recipient of the 1985 Nobel Memorial Prize in Economics. He was a professor at University of Illinois at Urbana–Champaign, Carnegie Mellon Uni ...

Professor of

Financial Economics Financial economics, also known as finance, is the branch of economics characterized by a "concentration on monetary activities", in which "money of one type or another is likely to appear on ''both sides'' of a trade".William F. Sharpe"Financial ...

at the

MIT Sloan School of Management The MIT Sloan School of Management (MIT Sloan or Sloan) is the business school of the Massachusetts Institute of Technology, a private university in Cambridge, Massachusetts. MIT Sloan offers bachelor's, master's, and doctoral degree programs, ...

after a long career as the

Sterling Professor Sterling Professor, the highest academic rank at Yale University, is awarded to a tenured faculty member considered the best in his or her field. It is akin to the rank of university professor at other universities. The appointment, made by the ...

of Economics and Finance at the

Yale School of Management The Yale School of Management (also known as Yale SOM) is the graduate business school of Yale University, a private research university in New Haven, Connecticut. The school awards the Master of Business Administration (MBA), MBA for Executives ...

. He is known for initiating several important theories and models in

financial economics Financial economics, also known as finance, is the branch of economics characterized by a "concentration on monetary activities", in which "money of one type or another is likely to appear on ''both sides'' of a trade".William F. Sharpe"Financial ...

. He was a widely published author in finance and economics, and was a coauthor of a best-selling

Corporate Finance Corporate finance is the area of finance that deals with the sources of funding, the capital structure of corporations, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and anal ...

textbook. He received his BS with honors from

Caltech The California Institute of Technology (branded as Caltech or CIT)The university itself only spells its short form as "Caltech"; the institution considers other spellings such a"Cal Tech" and "CalTech" incorrect. The institute is also occasional ...

in 1965 where he majored in physics, and his PhD in economics from

Harvard Harvard University is a private Ivy League research university in Cambridge, Massachusetts. Founded in 1636 as Harvard College and named for its first benefactor, the Puritan clergyman John Harvard, it is the oldest institution of higher le ...

in 1970, and taught at the

University of Pennsylvania The University of Pennsylvania (also known as Penn or UPenn) is a private research university in Philadelphia. It is the fourth-oldest institution of higher education in the United States and is ranked among the highest-regarded universitie ...

, and

MIT The Massachusetts Institute of Technology (MIT) is a private land-grant research university in Cambridge, Massachusetts. Established in 1861, MIT has played a key role in the development of modern technology and science, and is one of the m ...

. Ross is best known for the development of the

arbitrage pricing theory In finance, arbitrage pricing theory (APT) is a multi-factor model for asset pricing which relates various macro-economic (systematic) risk variables to the pricing of financial assets. Proposed by economist Stephen Ross in 1976, it is widely beli ...

(mid-1970s) as well as for his role in developing the

binomial options pricing model In finance, the binomial options pricing model (BOPM) provides a generalizable numerical method for the valuation of options. Essentially, the model uses a "discrete-time" ( lattice based) model of the varying price over time of the underlying f ...

(1979; also known as the

Cox–Ross–Rubinstein model In finance, the binomial options pricing model (BOPM) provides a generalizable numerical method for the valuation of options. Essentially, the model uses a "discrete-time" ( lattice based) model of the varying price over time of the underlying fina ...

). 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 In mathematical finance, the Cox–Ingersoll–Ross (CIR) model describes the evolution of interest rates. It is a type of "one factor model" ( short-rate model) as it describes interest rate movements as driven by only one source of mark ...

for interest rate dynamics. Such theories have become an important part of the paradigm known as

neoclassical finance Neoclassical finance is an approach within finance, developing since the mid-1960s, which holds that markets are efficient, and that prices will thus tend to equilibrium and be "rational"; and asset pricing models must then reflect these. It may ...

. Ross also introduced a rigorous modeling of the

agency problem Agency may refer to: Organizations * Institution, governmental or others ** Advertising agency or marketing agency, a service business dedicated to creating, planning and handling advertising for its clients ** Employment agency, a business that ...

in 1973, as seen from the principal's standpoint. Ross served as president of the

American Finance Association The American Finance Association (AFA) is an academic organization whose focus is the study and promotion of knowledge of financial economics. It was formed in 1939. Its main publication, the ''Journal of Finance'', was first published in 1946. ...

in 1988. He was named

International Association of Financial Engineers The International Association for Quantitative Finance (IAQF), formerly the International Association of Financial Engineers (IAFE), is a non-profit professional society dedicated to fostering the fields of quantitative finance and financial engin ...

' 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 is a private university, private research university in Princeton, New Jersey. Founded in 1746 in Elizabeth, New Jersey, Elizabeth as the College of New Jersey, Princeton is the List of Colonial Colleges, fourth-oldest ins ...

, in 2001. It became a book in 2004, presenting

and defending it, including such notions as the

efficiency Efficiency is the often measurable ability to avoid wasting materials, energy, efforts, money, and time in doing something or in producing a desired result. In a more general sense, it is the ability to do things well, successfully, and without ...

and

rationality Rationality is the quality of being guided by or based on reasons. In this regard, a person acts rationally if they have a good reason for what they do or a belief is rational if it is based on strong evidence. This quality can apply to an abil ...

of markets, against its critics, especially those who belong to the

behavioral finance Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the decisions of individuals or institutions, such as how those decisions vary from those implied by classical economic theory. ...

tradition. Ross was a recipient of a 2006 Smith Breeden Prize, a 2012

Onassis Prize The Alexander S. Onassis Foundation () was created by Aristotle Onassis to honor the memory of his son Alexander, who died at age 24 in an airplane crash in 1973. Aristotle Onassis died in 1975, and had directed in his will that half of his estate ...

, a 2014 Morgan Stanley - AFA Award for Excellence in Finance, as well as a 2015

Deutsche Bank Prize The Deutsche Bank Prize in Financial Economics honors renowned researchers who have made influential contributions to the fields of finance and money and macroeconomics, and whose work has led to practical and policy-relevant results.

for developing models used for assessing prices for options and other assets in the previous 30 years. Ross chaired the theses of a number of prominent economists, including

John Y. Campbell John Young Campbell (born May 17, 1958) is a British-American economist. He is the Morton L. and Carole S. Olshan Professor of Economics at the Department of Economics at Harvard University since 1994. Biography Early years Campbell was born in ...

Douglas Diamond Douglas Warren Diamond (born October 25, 1953) is an American economist. He is currently the Merton H. Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business, where he has taught since 1979. Diamond ...

Philip H. Dybvig Philip Hallen Dybvig (born May 22, 1955) is an American economist. He is the Boatmen's Bancshares Professor of Banking and Finance at the Olin Business School of Washington University in St. Louis. Career Dybvig specializes in asset pricing, b ...

, and

William N. Goetzmann William N. Goetzmann (born February 4, 1956) is the Edwin J. Beinecke Professor of Finance and Management Studies at the Yale School of Management, and a research associate of the National Bureau of Economic Research. In 2018, he received the Jam ...

. Two of his former students,

and

, won the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 2022.

References

External links

Sloan Faculty Profile

* * {{DEFAULTSORT:Ross, Stephen 1944 births 2017 deaths Financial economists American economists Harvard Graduate School of Arts and Sciences alumni University of Pennsylvania faculty Yale University faculty Fellows of the Econometric Society California Institute of Technology alumni MIT Sloan School of Management faculty Corporate finance theorists Yale Sterling Professors Fellows of the American Academy of Arts and Sciences Presidents of the American Finance Association