Shenzhen Business Daily • Reading Client Chief Reporter Wu Ji Correspondent Xu Junjie
On July 5, Professor Myron S. Scholes, Nobel Laureate in Economics and American economist, visited Southern University of Science and Technology and delivered a wonderful speech entitled "Time and Uncertainty", and held a roundtable dialogue with Professor Jin Li, Vice President and Acting Dean of the Business School of Southern University of Science and Technology, member of the National Committee of the Chinese People's Political Consultative Conference and member of the Economic Committee, on the theme of "Artificial Intelligence and Finance". The event attracted more than 800 teachers, students and industry professionals to participate, and the audience was full of enthusiastic responses.
Jiang Hong, Secretary of the Party Committee of Southern University of Science and Technology, delivered a welcome speech. Jiang Hong introduced the characteristics and positioning of SUSTech and pointed out that compared with traditional universities, SUSTech Business School is young and distinctive, and is committed to building a "science and technology business school" that supports innovation and entrepreneurship, and realizes the role and value of business in promoting social progress through scientific and technological innovation. Jiang Hong said that Professor Scholes is not only an academic champion, but also actively participates in financial practice, and hopes that Professor Scholes will strengthen cooperation with SUSTech in the future and provide guidance in business construction and talent training.
Keynote: Time and Uncertainty
The topic of Professor Scholes' presentation revolved around "Time and Uncertainty: Changes in Discount Rates". He pointed out that the change in the discount rate is a very important and interesting topic in the field of finance, which has a profound impact on the study of economics and finance. The discount rate directly affects the valuation and return on investment of an asset, so understanding and predicting changes in the discount rate is essential for investment decisions.
In his speech, Professor Scholes began by reviewing the development of financial theory, with particular reference to Harry Markowiz's 1952 paper "Portfolio Selection". Markowitz's work is like the "Big Bang" in finance, and his portfolio theory revolutionizes the understanding of risk and return, where what really matters is not the risk of individual assets, but how assets fit into the portfolio as a whole and the correlations between assets. Professor Scholes also mentioned several other scholars who have made significant contributions to financial theory, including William Sharp, Miller, Fisher, etc., who have greatly advanced the development of finance by studying the relationship between risk and return.
In terms of risk management, Professor Scholes emphasised the importance of dynamic risk management. He pointed out that traditional risk measurement often relies on historical data, but truly effective risk management should focus on the dynamic changes in risk and its impact on investment decisions, so understanding and managing this change is a key task for financial practitioners. He highlighted that uncertainty is one of the most interesting aspects of the financial sector, and that by building models to deal with uncertainty, risks can be better predicted and managed. The professor shared some of his insights and approaches to research, including how to use options and forward market information for risk management and forecasting.
In terms of asset allocation, Professor Scholes elaborated on how to manage risks and optimize investment returns through scientific asset allocation and diversification strategies. He emphasized that investors need to focus on long-term risk management, not just short-term returns, and that through diversification, trust considerations, tracking error management, and the application of insurance strategies, investors can achieve more stable investment returns in a complex and volatile market environment.
Emphasizing the importance of tail events and compounding returns, Professor Scholes noted that investors only have one chance to make a decision in each time period and cannot rely on the law of large numbers to make multiple attempts, so it is particularly important to focus on compound returns rather than average returns. Although tail events have a low probability of occurring, they contain a lot of information and have a significant impact on the return on investment, so they need to be paid as much attention as possible in the development of strategies.
The professor also explained the important role of the options market in risk management, he believes that the options market provides a lot of information about future volatility and market expectations, which can help investors better manage downside risks and improve the performance of portfolios.
At the end of his speech, Professor Scholes showed the unique advantages of the options market as a risk prediction tool through empirical data, and pointed out that implied volatility in the options market is an important indicator of investors' expected future volatility, and by analyzing the options market data, we can gain cutting-edge insights into future market risks. He also talked about how to use this data for dynamic risk management to improve the compound return of the portfolio.
After the speech, Jiang Hong presented Professor Scholes with a commemorative certificate of SUSTech Lecture Hall.
Panel Discussion: Artificial Intelligence and Finance
After the keynote speech, Prof. Jin Li, Vice President of SUSTech, and Prof. Scholes had a dialogue on the theme of "Artificial Intelligence and Finance", and discussed in depth the application of artificial intelligence in the financial field, the importance of financial risk management, and the impact of trust and governance structures on investment management, which provided valuable insights and guidance for the development and application of financial technology in the future.
Professor Scholes pointed out that there are currently boundaries to what AI is capable of, and while it excels at processing large amounts of data and pattern recognition, it still falls short in dealing with unseen exceptions and creative decisions. Professor Scholes also highlighted the role of option pricing models in market forecasting and risk management, as well as the impact of tail events on portfolio compounding returns. When it comes to trust and governance structure, he believes that fund managers with high trust can operate more flexibly and reduce constraints in the governance structure; Governance structures should balance innovation and constraints to address uncertainty and achieve higher CAGR. Looking to the future, Professor Scholes believes that financial management needs to take full advantage of artificial intelligence, which can help with repetitive tasks, but still needs human intervention and assistance in the field of creativity and decision-making dominated by human intelligence, as well as in dealing with complex and unusual situations in the financial sector.
Professor Jin Li said that AI has great potential for application in the financial sector, especially in wealth management and portfolio management. By processing large amounts of data and identifying anomalies in the market, AI can help human traders become more efficient, supporting the identification of exceptions and innovative investment decisions. In terms of risk management, Professor Jin Li agreed with Professor Scholes that focusing on compound returns rather than simply average returns, and focusing on the impact of tail events, is essential to improve portfolio returns over time. When talking about the topic of trust, Professor Jin Li said that reducing constraints and increasing flexibility can improve the effectiveness of investment management, and investment managers with high trust are generally able to handle investment affairs more flexibly, resulting in higher compound returns.
In the audience dialogue session that followed, Scholes answered questions from teachers, students and corporate guests on investment transactions, risk assessment, and the impact of artificial intelligence on option pricing and the energy industry.
The event was hosted by the Business School of Southern University of Science and Technology, and co-organized by the Southern Institute of Science and Technology Finance, CITIC Publishing Group, and CITIC Publishing Murphy. SUSTech Business School actively integrates technology and management teaching resources, deeply integrates business and science, engineering and medicine, and actively explores innovative models for cultivating outstanding science and technology entrepreneurs through executive education programs such as "Science and Technology Management Scholars", and is committed to building a science and technology innovation ecology in the Greater Bay Area. In the future, master dialogues, exchange salons and other activities will be held from time to time to promote exchanges and cooperation between scientists, entrepreneurs and financiers.