Nobel Prize recipient to speak at Ballroom today

Anthony Holloway

Myron Scholes, a Nobel Prize winner and 30-year veteran of teaching, is at Kent State today to “give people an opportunity to think in a different way or to broaden their perspective.”

Scholes will speak at 5:30 p.m. in the Student Center Ballroom as part of the Charles J. Pilliod Lecture Series.

In 1997, Scholes won the Nobel Memorial Prize in Economic Sciences for his work in the Black-Scholes Theory, which is a method for valuing stock and security options and using it for risk management. Scholes said the easiest way to understand optionality is to understand flexibility and how to value flexibility.

“The reason you are very flexible is that you have a lot of uncertainty, a lot of volatility in your thinking,” Scholes said.

He compares the concept to picking lighting for a house.

“If you know you just want an on-and-off switch then you would make it a digital system,” he said. “But the more uncertain you are of the lighting you would want in your room or house or whatever, then you would pay more money for it because you had volatility, but you would make your system an analog system that allows you to change the settings to become flexible.”

Scholes said the theory fits in by allowing people to place a value on optionality.

“Wouldn’t it be nice if we can value flexibility or value the optionality that we have?” he asked. “So, we designed a model in a way to value this optionality. If one can value optionality, the right to do something but without obligation to, then we can make more informed decisions.”

He said the ability to value optionality, even though it was postulated 12 years ago is still relevant.

“The question is to what extent there are imperfections, adjustments,” he said. “People have made adjustments in the model, in our theory over time, but the basic core of our theory is there. Just as any evolution or any science, people improve upon of what you’ve done and add to it. The theory and its extensions have held up.”

Scholes said there are perks to being a Nobel Prize winner.

“There’s not a secret handshake or anything like that,” he said. “I tell people if you have the opportunity to be awarded the Nobel Prize, don’t turn it down. It’s a great honor and it’s nice to have a broader recognition of your work than your peers. To be able to sign the book to acknowledge your receipt to accept the Nobel award and to see your name among the acolytes that you worshiped when you were younger, an Albert Einstein (or) a Marie Curie for example, is a rare event and it’s a wonderful feeling.”

Contact student finance reporter Anthony Holloway at [email protected]