STANFORD: Two new Nobel laureates at Stanford

Stanford awarded physics prize for third consecutive year

Vicky Anning

Champagne flowed for two days running at Stanford University this week as two professors were awarded the Nobel Prize in the fields of economics and physics. On Tuesday, Professor Myron S. Scholes from Stanford's Graduate School of Business heard that he and Harvard colleague Robert C. Merton had won the Nobel Prize for economics. On Wednesday, Professor Steven Chu learned that he had been awarded the Nobel Prize for physics along with two colleagues in Maryland and France.

This is the third consecutive year that the Royal Swedish Academy of Sciences bestowed the physics prize upon a professor associated with Stanford. Last year, Professor Douglas D. Osheroff won the physics prize, and in 1995, SLAC professor Martin Perl received the same honor.

Scholes, 56, learned of his new status at 5:30 a.m. Tuesday morning, when his brother, David, called from New York after hearing the news on the radio. The honor did not come as a complete surprise to Scholes, who has been mentioned over the years as a possible contender for the prize for his pioneering work in the valuation of stock options.

"When people say over the years that you've done great work, you say to yourself, 'Maybe it will happen,'" said Scholes. "When you get the call in the morning, it's still a tremendous shock and a great deal of excitement."

Scholes developed a stock option pricing model along with Merton and the late Fischer Black in the early 1970s, while working at the Massachusetts Institute of Technology. Ironically, the paper containing the actual pricing formula was rejected by several leading economic journals before it was finally published in the Journal of Political Economy in 1973.

"We were told that the formula was not broad enough in its application," said Scholes. "There were no options markets at that time."

According to Scholes, within a year every trader on the floor was using the new model. Later the formula that allows traders to calculate risk to a precise degree became so widely-used that Texas Instruments programmed the formula into their calculator, he said.

Canadian-born Scholes is professor emeritus at the Stanford Graduate School of Business. He left full-time academia in 1996 to concentrate on the world of finance. Today he is a partner at Long-Term Capital Management L.P., an investment firm based in Greenwich, Conn., which specializes in the development and application of financial technology to investment management.

But Scholes told reporters Tuesday that he is considering going back into academia now that he has received the ultimate academic accolade. He has been teaching and researching for almost 30 years, since receiving a doctorate from the University of Chicago in 1969. He taught at MIT's Sloan School of Management until 1974, then returned to the University of Chicago's finance faculty from 1974 to 1983. He joined Stanford's Graduate School of Business in 1983, and also served as a Senior Research Fellow at the Hoover Institution from 1987 until 1996.

Scholes' immediate plans Tuesday were to celebrate the good news with his two daughters, Anne, 28, and Sara, 26, who both live in Menlo Park, and his partner of three years, Jan Blaustein, a Berkeley lawyer. Scholes is divorced.

Scholes seemed unfazed by the $1 million prize money that comes with the award, to be presented in Stockholm on December 10. He will share the money with Merton, Scholes' partner and colleague of 30 years, he said.

"My family's going to want to go to Stockholm," he said. "That will eat into it."

And the rest he may invest in the derivatives market, he conceded.

Physics laureate Steven Chu was also blase about the prize money, which he will share with his two colleagues, Uncle Sam and California, he said. He joked that after all the deductions he probably would only be able to afford a mountain bike.

Chu, 49, was not allowing the fame to go to his head. He curtailed a morning press conference to return to his graduate students, who were waiting for him to teach a class in quantum mechanics.

"I'm still the same person I was yesterday," he said. "It's not like the hand of God came down. It's a mixture of luck and circumstance. It could have been a bad decision."

Chu is the nineteenth Stanford professor or member of the Hoover Institution to become a Nobel laureate. Eight of the Nobel prizes have been awarded for physics, and five for economics. It is not the first year that Stanford professors have run away with Nobel prizes in both economics and physics. In 1990, William F. Sharpe and Richard E. Taylor received the same double honor.

Chu and his colleagues received the award for their work developing methods to cool and trap atoms with laser light. Although colleagues like Osheroff knew that Chu was a likely candidate, Chu still thought it was a graduate student prank when a reporter called him in the middle of the night to ask him about the prize.

A modest man, Missouri-born Chu, who is divorced, lives on campus with his partner, Jean Fetter, a physics faculty member and university administrator, and spends half the week with his two children, who are 13 and 16. When he is not working he trys to swim, bike or place tennis everyday and he loves to cook. He received his doctorate in physics from UC Berkeley in 1976, and worked at AT&T Bell Labs for nine years before joining Stanford's faculty in 1987.

Osheroff, a 1996 winner, advised the two new laureates to relax and enjoy the limelight, but to get back to normal life as soon as possible. "It's unlikely to happen twice," said Osheroff, who has flown over 110,000 miles to conferences around the globe since he won the prize last year. Osheroff was convinced that the prize wouldn't be awarded to Stanford physics professors three years running. But he shared in his colleague's excitement Wednesday.

"It's great for Steve and it's great for atomic physics," he said. "But getting a Nobel Prize confers an expectation upon you that's unrealistic. We all feel that there are so many bright people out there who don't get the prize and don't get the attention."

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