MANAGEMENT CONFERENCE '98 FEATURES A NEW NOBEL LAUREATE AND GREAT
IDEAS FOR BUSINESS LEADERS
When the Royal Swedish Academy bestowed the 1997 Nobel prize upon
Myron Scholes, a double GSB alumnus and former faculty member,
it gave the school even more to celebrate in its centennial year.
The selection also made it easy to pick a noteworthy keynote speaker
for Management Conference 1998.
The GSB’s newest Nobel laureate helped attract a crowd of approximately
1,200 to the 46th Management Conference.
Scholes won the Nobel Prize for developing the Black-Scholes options
pricing formula with Fischer Black, which they published in 1973,
shortly after Scholes joined Black on the GSB faculty. The Nobel
Prize confirms what has become clear: the formula and the option
pricing technology it spawned has changed the financial world,
Scholes told the luncheon crowd.
"Trading derivatives has exploded since the 1970s; over-the-counter
and off-exchange trading has exploded since the 1980s. It’s hard
to prove, but I do think that the success of the Chicago Board
Options Exchange and other options exchanges around the world,
and now off-exchange trading, can be attributed to options technology,"
said Scholes. Using the Black-Scholes model and other approaches
that evolved subsequently gave traders "the edge to set tighter
spreads, take larger positions," he said. "Option pricing technology
was adopted simply because it lowered transaction costs.
In the last decade, "an entirely new science has grown up–financial
engineering," he added. Financial engineering is a system of applying
the principles of finance, economics, statistics, and other fields
to client problems in a global setting. The result of the process
is new financial products.
Better technology is one force driving the transformation of the
financial industry. Another is the explosion in financial theory–the
sheer brain power thrown at it, Scholes said. "Academic and applied
research has also expanded and continues to be a growth industry.
The scarce resource here is not financial capital but human capital.
We are increasing our understanding of the role unbending and
packaging derivatives can play in the management of risk."
Scholes pointed out that equity capital is an expensive way to
finance firms; hedging, while not without its own drawbacks, offers
lower disclosure and agency costs. "As of this date, the intellectual
acumen to engineer financial solutions is highly concentrated
in [banks and major financial institutions.]" As more firms know
how to use these solutions, they will substitute hedging for equity.
Costs will fall and give them a competitive advantage."
After lunch, the crowd moved to the Gleacher Center to tap into
the collective brain power of 48 panelists and a thousand or so
attendees participating in 14 sessions on hot business topics.
To learn more about specific sessions, click on the topics listed
below.