Merton, Robert C. "An Analytic Derivation of the Cost of Deposit Insurance and Loan Guarantees : An Application of Modern Option Pricing Theory" Journal of Banking and Finance 1 (June 1977): 3-11.
Merton, Robert C. "On the Pricing of Contingent Claims and the Modigliani-Miller Theorem." Journal of Financial Economics 5 (November 1977): 241-249. (Chapter 13 in Continuous-Time Finance.)
Merton, Robert C. “A Reexamination of the Capital Asset Pricing Model.” In Studies in Risk and Return, edited by J. Bicksler and I. Friend. Cambridge, Mass.: Ballinger, 1977.
Investment theory is the study of the individual behavior of house holds and economic organizations in the allocation of their resources to the available investment opportunities. For the purposes of investment theory, economic organizations are characterized as being members of one of two groups: "business firms" that hold as assets the physical means of production for the economy and finance their production decisions by issuing financial claims or securities; and "financial intermediaries" that hold financial claims as assets and finance these assets by issuing securities. Individuals or households are assumed to invest primarily in securities, and therefore invest only indirectly in physical assets. The markets in which these securities are traded are called the capital markets.
Merton, Robert C. "Continuous-Time Portfolio Theory and the Pricing of Contingent Claims. [pdf]" MIT Sloan School of Management Working Paper Series, No. 881-76, November 1976.
Merton, Robert C. "Option Pricing When Underlying Stock Returns are Discontinuous." Journal of Financial Economics 3 (January-February 1976): 125-144. (Chapter 9 in Continuous-Time Finance.)
Merton, Robert C. "The Impact on Option Pricing of Specification Error in the Underlying Stock Price Returns." Journal of Finance 31, no. 2 (May 1976): 333-350.