Taiwan: Change the Subject: Myron Scholes

Politics is not everything, OK 🙂

So, this post is for my students: Does he lack of sense of humor?

I am talking about the Nobel Laureate Myron Scholes. Have a look on the full article from New York Times ((the bold is mine):

You’re known as the “intellectual father of the credit-default swap.” Do you accept that label?
Let’s see. If it’s good, yes. If not, no.

In 1997, you shared the Nobel in economics for your Black-Scholes theory. Is the name intended as a riff on the black-hole theory?
No, but a friend of mine did tell me that when he was a physicist and wanted to get a job in finance, he interviewed at a bank, and the bank asked what he was working on, and he did say, “Black holes.” And they said: “Great! You’re working on Black-Scholes? You’re hired.”

Can you define the Black-Scholes theory?
It’s an equation that prices options on common stock and provides a methodology to value options on securities generally. It can be used to measure risk and transfer risk.

In retrospect, is it fair to say that the idea that banks could manage risk was a total illusion?
What you’re saying is negative. Life is positive too. Every side of a coin has another side.

The writer Nassim Nicholas Taleb contends that instead of giving advice on managing risk, you “should be in a retirement home doing sudoku.”
If someone says to you, “Go to an old-folks’ home,” that’s kind of ridiculous, because a lot of old people are doing terrific things for society. I never tried sudoku. Maybe he spends his time doing sudoku.

Some economists believe that mathematical models like yours lulled banks into a false sense of security, and I am wondering if you have revised your ideas as a consequence.
I haven’t changed my ideas. A bank needs models to measure risk. The problem, however, is that any one bank can measure its risk, but it also has to know what the risk taken by other banks in the system happens to be at any particular moment.

What good is a theory of risk management if it applies to one tree instead of the forest?
Most of the time, your risk management works. With a systemic event such as the recent shocks following the collapse of Lehman Brothers, obviously the risk-management system of any one bank appears, after the fact, to be incomplete. We ended up where banks couldn’t liquidate their risk, and the system tended to freeze up.

Why did you retire from teaching at Stanford?
Students were getting too young.

After leaving academia, you helped found Long-Term Capital Management, a hedge fund that lost $4 billion in four months and became a symbol of ’90s-style financial failure.
Obviously, you prefer not to have lost money for investors.

What are you doing these days?
I split my time between giving talks around the world and running a hedge fund, Platinum Grove Asset Management.

Does a place or a city called Platinum Grove exist on any map?
No. One of my partners is Chinese, and he said we needed a name that had one metal in it and one wood.

When will banks resume paying 5 percent interest on savings accounts?
You’re asking me to forecast. These are macroconditions that you are asking about. Macro! We’d have to spend a lot of time setting the predicate to be able to answer that question.

It’s been said that economists cultivate complexity and resist simplicity, because there’s no money to be made if everyone understands everything.
When there is a lot of uncertainty, it takes a lot of effort to understand things. Einstein said at one time, to paraphrase it, that in all science, any model should be made as simple as possible, but no simpler.

Actually, I think that’s one of the many quotations he is likely to have never said.
So what am I supposed to say? The guy’s a schnook? He should have said it.


Which one do I prefer?

The Sudoku one?

The forest one?

I think all 🙂

Enjoy 😆


Mots clés Technorati : ,,,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: