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. 

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