Options before Black and Scholes
Following on from last week's post, I have been reading a paper in the Journal of Finance by Lyndon Moore and Steve Juh. In this paper, they look at derivative pricing on the Johannesburg Stock Exchange 60 years before the Black-Scholes (1973) formula. They find that long before the development of formal theory, investors had a very good intuitive grasp of option pricing. The implication of their paper is that the innovation of the Black-Scholes-Merton formula does explain the huge growth of the options markets since the 1970s.