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Samuelsonian Economics and the Twenty-First Century$
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Michael Szenberg, Lall Ramrattan, and Aron A. Gottesman

Print publication date: 2006

Print ISBN-13: 9780199298839

Published to Oxford Scholarship Online: January 2009

DOI: 10.1093/acprof:oso/9780199298839.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2019. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 25 August 2019

Paul Samuelson and Financial Economics

Paul Samuelson and Financial Economics

Chapter:
(p.262) 18 Paul Samuelson and Financial Economics
Source:
Samuelsonian Economics and the Twenty-First Century
Author(s):

Robert C. Merton

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199298839.003.0019

This chapter's appraisal places models of time and uncertainty in household allocation of resources at the center of the Samuelson Contribution. It assesses Samuelson's contributions to the areas of efficient market theory and risk analysis, portfolio selection, and option and warrant pricing. Samuelson found that efficient markets do not allocate resources the way casinos do. Rather, asset prices vary randomly around an optimal path that can be discerned mathematically. The theory links spot price with future prices in order to forge a solution where spot prices are determined by optimal control theory. Samuelson's work in warrants and option pricing provides a bridge between early and later option pricing models, thanks to his insights on hedging and mathematical analysis that were incorporated into subsequent theories.

Keywords:   options, hedging, efficient market, spot prices, future prices, speculative price, optimal path, optimal control theory

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