Commodity option pricing efficiency before Black, Scholes, and Merton
Bibliographic Data
| ID | 3204002 |
|---|---|
| Authors | Doug Chambers (0000-0002-5511-4975, Centre for Economic Policy Research, corresponding author), David Chambers (0009-0002-1413-7801, Judge Business School Cambridge University, and the Centre for Economic Policy Research), Rasheed Saleuddin (Judge Business School Cambridge University, corresponding author) |
| Year | 2020 |
| Volume | 73 |
| Issue | 2 |
| Pages | 540-564 |
| Publication date | 2020-05-01 |
| Peer Reviewed | Yes |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | The Economic History Review (JOURNAL) |
| Journal identifiers | ISSN: 0013-0117 • E-ISSN: 1468-0289 |
| Publisher | Wiley (PUBLISHER • GB) |
| DOI | 10.1111/ehr.12935 |
| OpenAlex | W2979499993 |
| Language | EN |
| Citations received | 2 |
| References cited | 54 |
It is often thought that the arrival of the Black-Scholes-Merton (BSM) model of option pricing in the early 1970s allowed traders to understand how to price and value options with greater precision. However, our study suggests that interwar commodity options traders may have been able to intuit 'fair' value and to adjust their prices to changes in the market environment well before the advent of this innovative model. A scarcity of historical price data has limited empirical tests of option price efficiency well before BSM to studies of stock options in the 1870s and the early twentieth century which revealed contrasting findings. This study deals with option pricing in a different market-commodities-during the interwar period. We conclude that option prices were closer to their BSM theoretical values than prior studies suggest. Institutional differences between interwar commodity options markets and stock options markets in the 1870s and the early twentieth century may partly account for this result. Furthermore, we find that interwar option prices were no more mispriced than in modern times, and were as sensitive to changes in volatility-the key valuation parameter in the BSM model
Black–Scholes model · Commodity · Commodity market · Economics · Financial economics · Microeconomics · Option value · Valuation (finance) · Valuation of options · Volatility (finance) · Finance · Financial Markets and Investment Strategies · Market Dynamics and Volatility · Monetary Policy and Economic Impact
Globalization and History
This Time Is Different
Theory of Rational Option Pricing
An Engine, Not a Camera
From boom to bust
Commodity Price Volatility and World Market Integration since 1700
The Government of Markets
The Pricing of Options and Corporate Liabilities
Myopic rationality in a Mania
Populists versus theorists
The first global emerging markets investor
Commodity Exchanges in England
If You're So Smart
The Stock Market Boom and Crash of 1929 Revisited
Financial markets can go mad
Retrospectives
Taking firms to the stock market
Trading options before Black-Scholes
Constructing a Market, Performing Theory
| Unique citing works | 2 |
|---|---|
| Citations per year | 0,67 |
| Citation span | 2023 - 2025 (3) |
| Citation velocity | recent |
| Highly cited | No |
| Citation types | Neutral: 2 |