Index option prices clustered around Black-Scholes values despite greater model complexity

Evidence

What is even more striking, because of the much greater complexity of the mathematical relationship involved, is the closeness with which the index options that also began to be traded in the early 1980s clustered around the Black-Scholes flat-line relationship between strike price and implied volatility. … The establishment of the Commodity Futures Trading Commission had freed the futures exchanges from the grip of state anti-gambling laws, but the options exchanges were still subject to them. — Donald MacKenzie, An Engine, Not a Camera, 786

Categorization

• XREF: This is the core performativity evidence — markets conforming to Black-Scholes — connecting to chapter 5’s treatment of Thorp and option pricing. — connects to: Option market prices initially diverged from the Black-Scholes model but converged — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 735; Organized options trading alone could explain post-model price convergence to Black-Scholes — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1153; Index option prices embed a skew that actual price movements do not justify — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 911 (+3 more)

Broader Connections

• Organized options trading alone could explain post-model price convergence to Black-Scholes #corroborates (0.85) — Donald MacKenzie, An Engine, Not a Camera, 1153
• Black-Scholes legitimized options despite fitting prices only approximately #qualifies (0.80) — Donald MacKenzie, An Engine, Not a Camera, 707
• Index option prices embed a skew that actual price movements do not justify #complicates (0.75) — Donald MacKenzie, An Engine, Not a Camera, 911