2008 Woodie Awards
Nobel laureate speaks to students
Kyle Hansen
Issue date: 4/16/07 Section: News
"First, many of you study probability and statistics, … he will show you how probability and statistics are very important tools for you to understand the uncertainty of this complex world.
"Second, upon graduation you want to get a job with one of the many companies in the valley. Whether that company has money to hire you or not depends on the overall financial health on the market… .
"The third reason is that if you do have a job with one of the Silicon Valley companies, you will be given stock options. The company has to compute the values of the stock options that will be given you, and guess what? How will they compute the value? They will use the Black-Scholes options pricing model."
The Black-Scholes model is what Scholes is most famous for, and what led to his Nobel award. According to the Nobel Prize Web site, the model is used to calculate the value of stock options.
"Thousands of traders and investors now use this formula every day to value stock options in markets throughout the world," according to the Web site.
Scholes spent about 45 minutes talking about the way that his company invests money based on speculation about how the market is going to perform.
"The whole world is changing as a result of the development of derivative pricing, and the ability to price and manage risk," Scholes said. "Because now, every corporation … is deciding on what risks to take and what risks to transfer. Your skills or expertise to make money requires that you take risk or concentrate.
"You can't make money without concentrating in a business activity, but there are lots of risks that you take in undertaking a business that are not germane to the actual business at hand."
Scholes talked about how businesses transfer risks to others who try to make money by speculating on the market.
"Risk is not really risk minimization, it optimization," Scholes said. "You take the best you can, in terms of return, for the risks you are taking. There is always a trade off."
"Second, upon graduation you want to get a job with one of the many companies in the valley. Whether that company has money to hire you or not depends on the overall financial health on the market… .
"The third reason is that if you do have a job with one of the Silicon Valley companies, you will be given stock options. The company has to compute the values of the stock options that will be given you, and guess what? How will they compute the value? They will use the Black-Scholes options pricing model."
The Black-Scholes model is what Scholes is most famous for, and what led to his Nobel award. According to the Nobel Prize Web site, the model is used to calculate the value of stock options.
"Thousands of traders and investors now use this formula every day to value stock options in markets throughout the world," according to the Web site.
Scholes spent about 45 minutes talking about the way that his company invests money based on speculation about how the market is going to perform.
"The whole world is changing as a result of the development of derivative pricing, and the ability to price and manage risk," Scholes said. "Because now, every corporation … is deciding on what risks to take and what risks to transfer. Your skills or expertise to make money requires that you take risk or concentrate.
"You can't make money without concentrating in a business activity, but there are lots of risks that you take in undertaking a business that are not germane to the actual business at hand."
Scholes talked about how businesses transfer risks to others who try to make money by speculating on the market.
"Risk is not really risk minimization, it optimization," Scholes said. "You take the best you can, in terms of return, for the risks you are taking. There is always a trade off."
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