Option theory infrastructure allows derivatives markets to exist at current scale

Evidence

Overall, there is little doubt that finance theory’s incorporation into market infrastructure was consequential: in the terminology sketched in chapter 1, it constituted “effective performativity.” The stock market itself was affected first in the United States and then overseas by the growth of index funds, which were, as chapter 3 noted, inspired in part by ideas of market efficiency’ Again, though, it has been in the derivatives markets that the effects of finance theory have been the most profound. As emphasized above, those markets simply could not function on anything like the scale that they currently do without a technical and communicative infrastructure incorporating models that can be traced back to option theory. — Donald MacKenzie, An Engine, Not a Camera, 1138

Categorization

• DEFINE: Defines ‘effective performativity’ as the key analytic category, contrasting with mere surface invocation.
• XREF: connects to: Economic theory succeeded in derivatives markets partly by making markets conform to it — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 9; Option pricing theory did not describe markets but remade them in its own image — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 182; Financial pricing formulas actively construct the markets they purport to measure — Max Haiven, Cultures of Financialization, 84 (+8 more)

Broader Connections

• Organized options trading alone could explain post-model price convergence to Black-Scholes #corroborates (0.82) — Donald MacKenzie, An Engine, Not a Camera, 1153
• Economic theory and actual market practice cannot be radically separated in derivatives #expands (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1182
• The Black-Scholes theory reframed options trading as legitimate efficient pricing rather than gambling. #expands (0.70)