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 Univ ...
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"Financi ...
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, as ...
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 Executive ...
. 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"Financi ...
. He was a widely published author in finance and economics, and was a coauthor of a best-selling
Corporate Finance textbook.
He received his
BS with honors from
Caltech 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 l ...
in 1970, and taught at the
University of Pennsylvania
The University of Pennsylvania (also known as Penn or UPenn) is a Private university, private research university in Philadelphia. It is the fourth-oldest institution of higher education in the United States and is ranked among the highest- ...
,
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 Executive ...
, 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 (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 fin ...
(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 fin ...
). 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 market ...
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 in 1973, as seen from the principal's standpoint.
Ross served as president of the
American Finance Association 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 research university in Princeton, New Jersey. Founded in 1746 in Elizabeth as the College of New Jersey, Princeton is the fourth-oldest institution of higher education in the United States and one of the nin ...
, in 2001. It became a book in 2004, presenting
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 ...
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 ab ...
of markets, against its critics, especially those who belong to the
behavioral finance tradition.
Ross was a recipient of a 2006
Smith Breeden Prize
''The Journal of Finance'' is a peer-reviewed academic journal published by Wiley-Blackwell on behalf of the American Finance Association. It was established in 1946 and is considered to be one of the premier finance journals. The editor-in-chief ...
, 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 estat ...
, 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,
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, 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,
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 ...
and
Philip H. Dybvig, 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