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The foundation and future of finance (continued)

In addition to economics, finance, and accounting, the MFin program takes advantage of the intellectual ties among finance and mathematics, statistics, operations research, computer science, and engineering.

“We are focusing on a much broader application of skills in finance,” said Lo, “and we see ourselves fulfilling a broader mandate.”

“One of the themes that I saw I could contribute to at MIT is training the people who go forward,” Merton said. “I saw it as fulfilling a very important role of bringing highly trained young people to finance.”

Schmittlein added, “I stand with our Finance faculty in believing that financial systems are going to become more complex, not less complex, whether we like it or not,” said Schmittlein, “and we need leaders in the sector, in government, who understand that complexity and can drive the kinds of policies and practices that this complexity is going to demand.”

II. Evolution and Expansion

It was during Merton’s time as a student in the late 1960s that the MIT Sloan Finance Group was founded, long before many other business schools recognized finance as a distinct field of study. In the ensuing years, and with an influential collection of scholars including Merton, Paul A. Samuelson, Fischer S. Black, John Cox, Franco Modigliani, Stewart C. Myers, and Myron S. Scholes, these pioneers of modern finance received an impressive collection of awards, including several Nobel Prizes for their breakthroughs in financial economics.

“We have the history,” said Schmittlein. “If modern finance was invented in any one place, it was invented at MIT. There comes with that a responsibility that this School’s faculty has taken up to be real leaders.”

Included among the breakthroughs of those leaders are the Black-Scholes/ Merton option-pricing model; the Modigliani-Miller theorems; continuous-time models of consumption and portfolio choice; applications of option-pricing theory to real investments, corporate finance, and other real options; equilibrium models of the term structure of interest rates; binomial option pricing; and the risk-neutral pricing kernel for pricing derivative securities.

Even after 24 years on campus, “I still feel like a houseguest in the house that Samuelson and Merton built,” said Lo. “Bob and his colleagues laid the foundation.

Deborah J. Lucas, Sloan Distinguished Professor of Finance

And, as Lo and Merton both noted, the foundation is continuing to grow, with full-time faculty numbers expanding from 13 to 19 in the last 10 years. New faculty includes Deborah J. Lucas, the Sloan Distinguished Professor of Finance who served as assistant director at the Congressional Budget Office for the past two years in Washington, D.C., creating a group that uses financial analysis to evaluate government policies; and Andrei Kirilenko, currently the chief economist for the Commodity Futures Trading Commission, who will join the Finance Group as a Professor of Practice in January 2013.

“The fact that the group has grown so much mirrors the demand, especially the demand for training,” said Merton. “Research can go on anywhere, but the expansion of the faculty reflects that we need to have the people to implement and execute.”

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