In memoriam: Stephen Ross, former Yale professor helped shape field of financial economics

Stephen A. (Steve) Ross, a former Yale professor whose work shaped the development of the field of financial economics, died on March 3. He was 73 years old.

Ross is perhaps best known as the inventor of 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. Several models that Ross and his co-workers developed — including term structure models and option pricing models — are the standard used by major securities firms.

“Even though Steve’s academic appointment has been at MIT for many years, he was an engaged and valued member of our academic community,” said Edward Snyder, dean of the Yale School of Management (SOM). “Steve Ross was always supportive of Yale SOM and of me personally. I benefited from our discussions, which confirmed that he was one the great scholars of his time and absolutely committed to continue in the hunt for path-breaking insights.”

Ross was born on Feb. 3, 1944 in Boston, Massachusetts. He received his B.S. in physics with honors from Caltech in 1965 and his Ph.D. in economics from Harvard University in 1970.

At the time of his death, Ross was the Franco Modigliani Professor of Financial Economics at MIT and professor of finance at the MIT Sloan School of Management.  Previously, he served on the Yale faculty for 13 years, eventually being named Sterling Professor of Economics and Finance, one of the highest distinctions awarded to a Yale faculty member. Prior to his Yale appointment, Ross served on the faculty of the Wharton School of the University of Pennsylvania.

“Steve was a great friend, colleague, and business partner,” said Rick Antle, the William S. Beinecke Professor of Accounting at Yale SOM. “Any day I worked with Steve, I could count on learning at least six things.

“Steve’s efforts to build SOM in its early days brought to Yale faculty members of unmatched academic standing,” Antle continued. “Of the group that were here when I came in 1985, two are now Nobel laureates: Oliver Williamson and Bengt Holmstrom. More members of that group could easily join Oliver and Bengt. His ability to recruit them to Yale demonstrated Steve’s intellect, energy, and willingness to help his colleagues and build institutions.

“Even though Steve left Yale, his primary residence remained in New Haven and he continued to be interested in Yale and SOM. Steve was always interested in our plans and progress and always rooted for our success,” said Antle. “I will miss him terribly.”

In addition to his academic positions, Ross worked as an adviser to various government departments, including the U.S. Treasury, the Commerce Department, and the Internal Revenue Service, and the EXIM Bank, and as a consultant to a number of investment banks and major corporations. A president of the American Finance Association in 1988, he was a former chair of the American Express Advisory Panel and served as director of Gen Re, Freddie Mac, and CREF.

He was a co-founder and principal of Ross, Jeffrey & Antle LLC, an investment advisory firm specializing in using options to enhance the performance of institutional portfolios.

Ross wrote over 100 articles in finance and economics, and his introductory finance textbook, “Corporate Finance,” is used in M.B.A. programs across the country. He was also an associate editor of several journals in the field.

For his contributions to finance and economics, Ross received the 2015 Deutsche Bank Prize, given biannually to “internationally renowned economic researchers whose work has a marked influence on research concerning questions of financial economics and macroeconomics, and has led to fundamental advances in economic theory and practice.” His other awards include the Morgan Stanley Prize (2014), first prize in the Roger F. Murray Prize Competition (2013), the Onassis Prize for Finance (2012), and the Jean-Jacques Laffont Prize (2007). He was a CalTech trustee, and a fellow of the Econometric Society and of the American Academy of Arts and Sciences.

Ross is survived by his wife of 49 years, Carol Ross; his children Katherine Ross and Jonathan Ross; and other family members.