# MIT Alumni Win Nobel Prizes In Physics, Economic Sciences

**By Brett Altschul**

**NEWS EDITOR**

This week, two MIT alumni were awarded Nobel Prizes for their work. William D. Phillips PhD '76 received the Nobel Prize in physics, and Robert C. Merton PhD '70 won the Nobel Memorial Prize in Economic Sciences.

Merton, who is a professor at Harvard University, shared his prize with Myron S. Scholes of Stanford University. In collaboration with Fischer Black, who died in 1995, they developed the Black-Scholes formula for the value of derivatives.

Merton improved on the original derivation of the formula, finding an alternate derivation. The new derivation was easy to apply to other kinds of investments, and Merton generalized the formula to cover a wide variety of options.

"Thousands of traders and investors now use this formula every day to value stock options in markets throughout the world," said the prize citation.

"I'm very pleased to win this," Merton said. "I'm glad my formula has gotten such widespread use," he said.

### Formula based on new principle

In the past, attempts to calculate the value of derivatives involved a calculation of the risk involved in the investment.

The Black-Scholes formula avoids the problem of calculating risks by assuming that they are included in the price of the derivative. By continuously adjusting their portfolios, investors can determine the best set of investments based only on current prices.

Without the need to estimate future risks, investors can evaluate their position intelligently, without any guesswork, Merton said. The formula and its consequences have helped millions of people and companies with their investment plans.

"Black, Merton, and Scholes' method has become indispensable in the analysis of many economic problems," the citation said. "Derivative securities constitute a special case of so-called contingent claims and the valuation method can often be used for this wider class of contracts."

"The value of the stock, preferred shares, loans, and other debt instruments in a firm depends on the overall value of the firm in essentially the same way as the value of a stock option depends on the price of the underlying stock," the citation said.

### Laser cooling wins in physics

Phillips shared the Nobel Prize for his work on cooling atoms with lasers. This technique has allowed scientists to study single atoms and enabled the development of the atom laser last year.

"Individual atoms can be studied there with very great accuracy and their inner structure can be determined," the prize citation said. "As more and more atoms are captured in the same volume a thin gas forms, and its properties can be studied in detail.

"The new methods of investigation that the Nobel laureates have developed have contributed greatly to increasing our knowledge of the interplay between radiation and matter," it said.

The citation mentioned the many applications of the research. "The methods may lead to the design of more precise atomic clocks for use in space navigation and accurate determination of position," it said.

"A start has also been made on the design of atomic interferometers with which very precise measurements of gravitational forces can be made, and atomic lasers, which may be used in the future to manufacture very small electronic components."

Phillips is a research scientist at the National Institute of Standards and Technology. He shared the prize with Steven Chu, of Stanford and Claude Cohen-Tannoudji, of the ...cole Normale in Paris.

### ŒOptical Molasses' chills atoms

Chu conducted the first experiments with laser cooling in 1985. Six laser beams cool a gas by immersing atoms in what has been dubbed "optical molasses." Atoms preferentially absorb momentum from the lasers in the direction contrary to their motion.

The Doppler effect, which changes the frequency of light with respect to moving observers, allows experimenters to cool the atoms to about 240 microkelvin.

In 1988, Phillips perfected Chu's technique by adding a strong oscillating magnetic field to trap the atoms. In Chu's initial setup, gravity caused the atoms to fall out of the optical molasses after about one second.

Cohen-Tannoudji made theoretical calculations of the minimum temperature that a magneto-optical trap could achieve. These agreed very well with Phillips' experimental data, and pointed researchers toward methods to improving the technique.