Academic theory directly motivated the creation of the organized options exchange

Evidence

It seems to have been reading about Malkiel and Quandt’s favorable economic analysis of options in an article in the magazine Institutional Investor (Malkiel and Quandt 1968) that drew the attention of a leading member of the Board of Trade: the grain trader Edmund O’Connor. Options were desirable but traded only ad hoc. Might the Board not profitably standardize them and trade them in a busy, efficient Chicago pit? — Donald MacKenzie, An Engine, Not a Camera, 651

Categorization

• XREF: A foundational performativity mechanism: economic theory read by a practitioner prompted institutional innovation. Links to the reader’s broader finance/financialization literature on theory-driven market construction. — connects to: Economic theory, not trader demand, forged the proposal for the stock-options exchange — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 63; The Black-Scholes theory reframed options trading as legitimate efficient pricing rather than gambling.; Academic findings directly spawned commercial investment products — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 438 (+7 more)

Broader Connections

• Option pricing theory did not describe markets but remade them in its own image #complicates (0.80) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 182
• Economic theory succeeded in derivatives markets partly by making markets conform to it #corroborates (0.78) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 9
• Cold rational egoism cannot explain the founding of modern derivatives exchanges #corroborates (0.75) — Donald MacKenzie, An Engine, Not a Camera, 678
• Mathematicization of options trading happened through, not despite, pit trading’s bodily social structures #corroborates (0.72) — Donald MacKenzie, An Engine, Not a Camera, 755
• The growth and risk of options trading made pricing models indispensable #complicates (0.72) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 125
• A market shock forced Chicago options traders to adopt theory-based identity and hedging #qualifies (0.72) — Donald MacKenzie, An Engine, Not a Camera, 745