Continuous-Time Finance

Outline

Continuous-Time Finance (1990) is a foundational work in modern financial economics. Robert C. Merton brings together his research on how investors make decisions over time, how options and other financial instruments can be priced, and how financial markets and institutions manage risk. The book’s mathematical models have shaped the way banks, investors, and regulators understand markets.

• Investors make decisions continuously over time, so models of investing have to account for how choices and conditions change as time passes.
• Options and other financial instruments can be priced with mathematical models rather than by guesswork.
• Risk and uncertainty are central to how asset prices are formed in financial markets.
• Financial markets and institutions have a core job: managing risk.
• The book's mathematical models have shaped how banks, investors and regulators understand markets.

Robert C. Merton is an American economist and professor at the MIT Sloan School of Management. He shared the Nobel Prize in Economics in 1997 for his work on a new method of valuing financial options, which helped transform modern finance. His research covers risk management, investing, and retirement planning, and his books include Continuous-Time Finance.