Stephen Ross

Franco Modigliani Professor of Financial Economics
Professor of Finance

Biography | Selected Publications

Stephen Ross

Stephen A. Ross is the Franco Modigliani Professor of Financial Economics and a Professor of Finance at the MIT Sloan School of Management.

He was previously the Sterling Professor of Economics and Finance at Yale University and, before that, a professor of economics and finance at the Wharton School of the University of Pennsylvania. Ross is also the chairman of Compensation Valuation, Inc. (CVI), as well as the principal and chief investment officer of Ross Institutional Investors, LLC (RII). CVI specializes in the valuation of complex option contracts and is currently a leading provider of valuation services for determining the expensing of employee stock options, while RII manages portfolios of funds of alternative investments.

Ross is the author of more than 100 articles in economics and finance and is the coauthor of an introductory textbook in finance. He is probably best known for having invented the Arbitrage Pricing Theory and the Theory of Agency, and as the co-discoverer of risk-neutral pricing and of the binomial model for pricing derivatives. Models developed by Ross and his co-workers, including term structure models and option pricing models, are now standards for pricing in major securities trading firms.

He has been the recipient of numerous prizes and awards, including the Graham and Dodd Award for financial writing, the Pomerance Prize for excellence in the area of options research, the University of Chicago’s Leo Melamed Prize for the best research by a business school professor, and the 1996 IAFE Financial Engineer of the Year Award. In 2006, he was the first recipient of the CME-MSRI Prize in Innovative Quantitative Application, and in 2007 he won the Jean-Jacques Laffont Prize given by the Toulouse School of Economics. A Fellow of the Econometric Society and a member of the American Academy of Arts and Sciences, he currently serves as an associate editor of several economics and finance journals and in 1988 was president of the American Finance Association.

Ross has been a consultant to a number of investment banks as well as many major corporations. In addition, he has served as an advisor to government departments such as the U.S. Treasury, the Commerce Department, the Internal Revenue Service, and the EXIM Bank. He co-founded and was the co-chairman of Roll and Ross Asset Management Corp., an equity money manager; chairman of the American Express Advisory Panel; and a former director of General Re and of CREF. He is currently Chairman of the Investment Advisory Board of IVC International, Ltd.; a director of IV Capital, Ltd.; a former member of the board of directors of Freddie Mac; and a trustee of the California Institute of Technology (CalTech), where he chairs the investment committee.

He holds a BS in physics from CalTech and a PhD in economics from Harvard University.

Current Research Focus:  Ross’s research is currently focused on extending and applying the Recovery Theorem.  The Recovery Theorem enables us to extract or “recover,” from the prices of options, the market’s probability distribution for future returns.  In this respect it is similar to the term structure of interest rates but unlike the term structure, recovery allows us to determine the entire future market subjective probability distribution.  Ross is now extending this from the equity markets to the fixed income markets and exploring the mathematical foundations of recovery.

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General Expertise
Applied economics; Arbitrage pricing theory; Asia; Asset management and pricing; Banking; Bond pricing; Capital market; CEO compensation; Contagion; Corporate strategy and policy; Currency; Derivatives; Economics; Equities; Europe; Exchange rates; Executive compensation; Federal Reserve; Financial econometrics; Financial engineering; Financial information technology; Financial markets; Financial services; Futures; Hedge funds; Investment analysis; Investment risk; Investment strategies; Mortgage funds; Mutual funds; Options; Options pricing, valuation; Personal finance; Portfolio choice; Portfolio design and management; Retirement planning; Risk capital; Security prices; Stock exchange; Stock market; Stock trading; Treasuries; Valuation; Wall Street