Nobel laureate Professor Myron S. Scholes receives Honorary Doctor of Letters

Nobel laureate Professor Myron S. Scholes

Nobel laureate Professor Myron S. Scholes, Frank E. Buck Professor of Finance, Emeritus, at the Stanford University Graduate School of Business was conferred an Honorary Doctor of Letters by City University of Hong Kong at an Awards Ceremony held in November 2013. In his address at the ceremony, Professor Scholes thanked CityU and President Way Kuo for the honour. He shared experience of his research journey: "To make progress in research, business and politics, we need to build a model to understand a small part of the uncertain environment that we observe. The model will provide us with understanding and, combined with our experience and judgment and wisdom, direct us to make predictions and decisions to make others and ourselves better off."

In a presentation on the Global Economy held by the College of Business, Professor Scholes touched on a number of topics during a wide ranging Q&A session. In response to questions Professor Scholes discussed issues raised by European countries where more than half of the GDP was in government services, where the working population typically enjoyed 6-week annual holidays, a 35-hour working week, and retirement at the age of 60. All this was costly and one of the corollaries of a declining European economy was that the birth rate in many countries was below replacement levels. Professor Scholes remarked that this was akin to losing your seed corn. The hunters take flight and seek out more prosperous futures abroad leaving the peasant farmers behind. He applauded Japan for its current restructuring effort but felt that Europe would take time to grow out of its predicament.

On future developments in China, Professor Scholes posited that China would become more technically efficient in serving its population by moving quite dramatically up the value chain. To do that it would internationalize further and move towards a fully convertible RMB. In a future where the US was insourcing more, and was more energy independent, there would be fewer dollars floating around the system, and that would mean that another currency would need to step forward especially in the resource area. The RMB would be ideally positioned to take up this role.

All this would mean that there would be more ability for foreign direct investment in China, there would be facility for China banks to become more competitive in the interest rates that they pay, and that the new banking culture would be less a cash transfer system, more of a lending culture. As for the speed of change, Professor Scholes would not be drawn. He characterised R&D as more accurately "Research and Testing", and cautioned that errors were a necessary part of the process. Professor Scholes remarked that it had taken hundreds of years to develop the Silk Road. Change will happen over time.

Professor Scholes was awarded the Nobel Memorial Prize in Economic Sciences in 1997 for a new method to determine the value of derivatives. According to the official website of the Nobel Prize, along with Robert C. Merton and in collaboration with the late Fischer Black, he 'developed a pioneering formula for the valuation of stock options. Their methodology has paved the way for economic valuations in many areas. It has also generated new types of financial instruments and facilitated more efficient risk management in society.'

Professor Scholes' CityU presentation on the Global Economy was recorded and broadcast by Phoenix TV in its programme Century Auditorium 世紀大講堂.