Not every child in rural Tennga, Georgia, grew up reading the newspaper’s financial pages and talking about investing in stocks. Jimmy Hilliard represented an exception.
“My father said, ‘Son, you shouldn’t be doing that because investing in stocks is gambling,’” Hilliard explained. “I didn’t listen.”
Years later, Hilliard, the Harbert Eminent Scholar of Finance at the Harbert College of Business, has written 66 articles specializing in stocks, investments and pricing models published in various academic journals. Recently, he was recognized by the Southern Finance Association as its Distinguished Scholar for 2017. The Southern Finance Association was established in 1961 and counts many national and international scholars among its membership.
“I really enjoy using computer intensive numerical approaches to solving difficult option pricing problems,” said Hilliard, who fell in love with statistics classes as an undergraduate at the University of Tennessee. “Building financial models that explain what we see in the markets has always been interesting to me. There are stock prices, option prices and different ways to come up with valuation formulas. If you can come up with a better formula, that’s a contribution. The market sets the prices but if you can come up with a model that explains these prices it is only a small step forward to design hedges that reduce risk.
“I sit in front of a computer screen and anticipate what it will tell me next. I have my models. I have my data, and I can see something that nobody else has seen. It might be garbage sometimes, but occasionally it’s pretty good.”
Recently, Hilliard’s co-authored article with his wife and fellow Harbert College finance professor Jitka Hilliard, “Option Pricing Under Short-Lived Arbitrage: Theory and Tests” was accepted for publication into Quantitative Finance , an elite publication in the area of mathematical finance.“ Arbitrage is basically free money,” Hilliard said. “You buy something at a low price and simultaneously sell an equivalent asset at a higher price. In liquid markets, we frequently assume that there is no arbitrage. And this gives rise to a host of useful financial models, including option-pricing models, futures cash-and-carry models, swaps, and exchange traded funds.” These models are involved in directing the daily flows of money in contracts worth more than one trillion dollars.
The arbitrage paper was the basis of Hilliard’s keynote speech at the recent Southern Finance Association conference in Key West, Florida. Interestingly, the address to academic and industry peers was given directly on the Key West Beach, a speech Hilliard laughingly dubbed, “the speech on the beach.” Befitting the casual location, that speech was titled “Arbitrage, No-Arbitrage, and a Little Bit of Arbitrage. “
Other works in Hilliard’s 40-year academic career include “The Relationship Between Equity Indices on World Exchanges,” “Valuation of Commodity Futures and Options Under Stochastic Convenience Yields, Interest Rates, and Jump Diffusions in the Spot,” and even “A Cross-Spectral Analysis of Beef Prices.” His published work has been cited more than 1,600 times.
“We are always reaching to make a difference,” said Hilliard. “Research is exciting. For me, this is more fun than playing golf or my best sport, racquetball. I would rather come to the office, work on my computer and develop some pricing models than most other things. If you are really into your research, you can work a long time. I don’t think I will ever retire.”