> [From the Harvard Business School web page describing the research of
> Robert Merton, partner in the busted hedge fund, Long-Term Capital
> Management. Proper risk control indeed. Would you trust your pension to
> this man?]
Robert Merton is a Nobel Laureate among with Black and Scholes for the BS model. He is an expert in Stochastic Calculus (continuous time random walks) and Continuous time finance. He did the continuous time trading model of BS. He has a model of options pricing in three words or less prices an option in terms of an idealized market basket of assets which similate the situation of owning derivates. It actually works "moderately" well in the domain to which it was applied. Markets for which this work perfectly are idealized so its useful as a benchmark in some situations to see how far the finanical market of derivatives is far from perfect.
It seems unlikely to me that Merton would spend much time managing the fund which he is supposed to be managing, so the answer is no. Would I trust Merton to provide a framework to manage risk. Somewhat more likely although he's getting old and therefore less quick and competent. Is there a lot of "smart money" say from Harvard Universities Endowman Fund which is a multi billion dollar enterprise in Merton's fund. Its more likely that Merton basically sold his name to the fund. Fund management simply takes too much time. Merton personally has no incentive to do this. However, like Keynes I doubt if you
will find him personally busted. This would be much more interesting (and unusual) if his money was where his mouth is.
--mike -- Michael Cohen mike at cns.bu.edu Work: 677 Beacon, Street, Rm313 Boston, Mass 02115 Home: 25 Stearns Rd, #3 Brookline, Mass 02146 Tel-Work: 617-353-9484 Tel-Home:617-734-8828 Tel-FAX:617-353-7755