Macro-Finance Salon (No. 51): Option Trading and Transaction Strategies

On March 14, Macro-Finance Salon (No. 51) was held in Renmin University of China. George Jabbour, the guest speaker, is the professor of Finance in the School of Business at George Washington University. He is also a visiting professor at Franklin College (Switzerland), Dongseo University (South Korea), and Sorbonne University (France). The salon was presided over by Prof. Qian Zongxin, the associate professor of the School of Finance at Renmin University. Prof. Zhao Xijun, Associate Dean of the School of Finance, gave his comments on the speech. Prof. Jabbour delivered a keynote speech on option trading and transaction strategies (risk control): experience from the U.S. and South Korea. Firstly, Prof. Jabbour introduced the concept of forward contracts, futures, options and swap transaction, and gave a review of the origin and history of financial derivatives. He said, financial derivatives were invented to prevent risks. However, due to the problem of overusing credit instruments and lacking risk management mechanism, they could impose great danger to the economy if not handled properly. Therefore, regulations and laws concerning transparency are very necessary. Speaking of the financial crisis in 2008, Prof. Jabbour pointed out that information opacity and the risks generated by investors seeking for excessive benefits were two main causes of the crisis. He warned that, if these signals continue, for example, reforms see little effect, banks still operate in the dark, and financial derivatives transactions are overheated…another financial crisis might be around the corner. Additionally, taking the example of South Korea, Prof. Jabbour suggested that regulation, risk control, transparency and compliance were the four significant dimensions of derivatives market, and thus decision-makers should deal with challenges in these aspects. Lastly, Prof. Jabbour employed mathematical models in option trading and transaction strategies to explain that only when financial derivatives were handled properly, can we avoid risks and guarantee profits. He also highlighted the significance of rationality and education in financial market and financial activities. After the speech, Prof. Jabbour answered questions from the audience about transparency, government role, regulation on option market and e-commerce, etc.

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