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MONEY MANAGEMENT

Stephen A. Ross, father of arbitrage pricing theory, dies at 73

Stephen A. Ross
Stephen A. Ross

Stephen A. Ross, Franco Modigliani professor of financial economics and a professor of finance at the Sloan School of Management at the Massachusetts Institute of Technology, died March 3. He was 73.

Mr. Ross was also a member of the board of trustees and investment committee at his alma mater, the California Institute of Technology, and co-founder and principal of investment advisory firm Ross, Jeffrey & Antle.

A Caltech news release said Mr. Ross was perhaps best known for his agency theory and arbitrage pricing theory.

“As Steve was the chair of the investment committee when I arrived at Caltech, I had the honor and privilege of working closely with him,” said Scott H. Richland, chief investment officer, in the news release. “Steve had a rare combination of brilliance, kindness and humor. His devotion to Caltech and his contributions to guiding the endowment will be greatly missed.”

The Pasadena-based endowment has more than $2.8 billion in assets, according to the investment office's website.

Mr. Ross won the Deutsche Bank Prize in Financial Economics in 2015.

“Stephen Ross' seminal paper on arbitrage pricing theory is the foundation for all the risk-factor models we use today,” Jurgen Fitschen, former co-CEO of Deutsche Bank, said at the time in a statement about the award. Mr. Fitschen added that Mr. Ross helped develop “the risk-neutral pricing theory that underpins the entire options market.”

Bruce I. Jacobs, principal and co-founder of Jacobs Levy Equity Management, said in a statement that Mr. Ross “was a brilliant theorist and sought-after adviser who never lost sight of the need for practical solutions to real problems. Over four decades, he produced a number of influential theories and models that have become integral to finance as it operates today. These include his work on risk-neutral pricing and the binomial option pricing model, as well as, of course, arbitrage pricing theory.”

“Steve's solution represented the first multifactor pricing model in finance. APT recognized a portfolio's sensitivity not only to the market, but also to unanticipated changes in interest rates, inflation and other macroeconomic factors,” Mr. Jacobs said.

The Caltech news release also pointed out Mr. Ross' work as an adviser to government departments including the U.S. Treasury, Commerce Department and Internal Revenue Service, and the Export-Import Bank of the United States.

Mr. Ross was also a former chairman of the American Express Advisory Panel and also served previously as director of CREF, Freddie Mac and General Re.

Paul Denning, MIT Sloan School of Management spokesman, did not return a phone call by press time. Information about services was not yet available.