Few people have impacted the way the world works, and today, we have the privilege of speaking to one of them. Professor Robert C. Merton is the Distinguished Professor of Finance at The Massachusetts Institute of Technology (MIT) Sloan School of Management and Professor Emeritus at Harvard University. He has a Ph.D. in Economics from MIT and is currently the Resident Scientist at Dimensional Fund Advisors. Professor Merton was awarded the Alfred Nobel Memorial Prize in Economic Sciences in 1997 for his work establishing a new method to determine the value of derivatives. He also created the Intertemporal Capital Asset Pricing Model (ICAPM), a popular tool to help advisors make informed financial decisions and understand market trends. In our incredible conversation, we cover portfolio theory, moving from Capital Asset Pricing Model (CAPM) to the Intertemporal Capital Asset Pricing Model (ICAPM), and how financial models work. We also discuss the difference between the value of your capital and the value of the cash flow that can come from that capital, why size can't be a factor, what aspects to consider when calculating the worth of an account, and the definition of market efficiency. We also delve into retirement, how to safely invest for it, what pitfalls to avoid, and how retirement funds may change over time. He also shares his opinion about some popular financial advise and what the roles of financial advisors should be. For all this and more, tune in to hear from the man behind the model and Nobel laureate, Professor Robert C. Merton!

Timestamps:
0:00 Intro
4:45 The Basics of ICAPM asset pricing model explained
11:35 How portfolio theory changes when moving from single-period to multi-period
15:33 Practical example of expected returns changing over time
24:17 ICAPM & an investor’s risk
36:50 The time horizon’s influence on risk-free assets and your stocks & bonds mix
46:23 His opinion on using leverage to make investments
1:03:02 Discussion on retirement (difficulties, tips, etc.)
1:29:25 Overview of the impact mathematical models have had on the finance sector
1:44:16 What popular financial advice does Prof. Merton believe to be misguided?
1:46:25 Ways his work on option pricing has impacted society
1:58:39 The role he see’s for financial advisors
2:06:11 Prof. Merton unpacks the definition of product design
2:12:21 Extended discussion

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