Options pricing theory grew despite options being a minor financial instrument

Evidence

The focus on options did not arise because they were important financial instruments: they were not. The Great Crash of 1929 reignited the traditional hostility to options, which were widely seen as implicated in the excesses and abuses of the 1920s. An outright federal ban on stock-option trading was only just averted (Filer 1959), and such trading continued only in a small, illiquid, ad hoc market based in New York. In general, only brokers’ price quotations could be obtained from that market, not the actual prices at which options were bought and sold. The absence of robust price data was a disadvantage of the options traded in New York from the viewpoint of financial economists. — Donald MacKenzie, An Engine, Not a Camera, 530

Categorization

• XREF: Ties into the book’s broader theme: academic attention can be driven by data availability and normal-science elaboration, not by instrument importance — echoes the performativity tension with practice. — connects to: Options were once stigmatized securities but posed a tractable normal-science pricing problem — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 140; Black-Scholes legitimized options despite fitting prices only approximately — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 707; The Black-Scholes theory reframed options trading as legitimate efficient pricing rather than gambling. (+2 more)

Broader Connections

• Black-Scholes legitimized options despite fitting prices only approximately #expands (0.80) — Donald MacKenzie, An Engine, Not a Camera, 707
• The growth and risk of options trading made pricing models indispensable #qualifies (0.80) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 125
• The Black-Scholes theory reframed options trading as legitimate efficient pricing rather than gambling. #expands (0.75)