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MATHEMATICS AND SOCIETY
The Nathan and Beatrice Keyfitz Lectures in Mathematics and
the Social Sciences
Thursday April 15, 2010
6:00 p.m.
Robert C. Merton, Harvard Business School
Observations on the Science of Finance in the Practice
of Finance: Past, Present, and Future
Bahen Center (BA), Room 1160
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These lectures will be of interest to the university
community as well as to individuals involved in public administration,
economics, health policy, social and political science. The
purpose of the series is both to inform the public of some of
the ways quantitative methods are being used to design solutions
to societal problems, and to encourage dialogue between mathematical
and social scientists. All lectures are open to the public and
everyone is welcome.
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Observations on the Science of Finance in the Practice
of Finance:
Past, Present, and Future
For several decades, financial innovation has been a central
force driving the global financial system toward greater efficiency
with considerable economic benefit having accrued from those
changes. The scientific breakthroughs in finance in this period
both shaped, and were shaped by, the extraordinary innovations
in finance practice that expanded opportunities for risk sharing,
lowering transactions costs, and reducing information and
agency costs. Today no major financial institution in the
world, including central banks, can function without the computer-based
mathematical models of modern financial science and the myriad
of derivative contracts and markets used to extract price-
and risk-discovery information as well as execute risk-transfer
transactions. But also today, we are faced with the effects
of a global financial crisis of a magnitude and scope not
seen in nearly eighty years, which some attribute to the changes
in the financial system brought about by financial innovation,
derivatives, and mathematical models. The lecture will apply
the tools of financial science to analyze and offer observations
on the structural elements of financial crisis, on needed
financial regulatory changes, and on the important role of
financial innovation and science in the future beyond the
crisis.
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Robert C. Merton is currently the John and Natty McArthur
University Professor at the Harvard Business School. After receiving
a Ph.D. in Economics from Massachusetts Institute of Technology
in 1970, he served on the finance faculty of MIT's Sloan School
of Management until 1988 when he moved to Harvard. Professor Merton
is past President of the American Finance Association, a member
of the National Academy of Sciences, and a Fellow of the American
Academy of Arts and Sciences. He received the Alfred Nobel Memorial
Prize in the Economic Sciences in 1997.
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