The founders adapted option theory to include real-world imperfections like volatility and costs.

Evidence

Leland, O’Brien, and Rubinstein knew they did not live in what Leland called “a Black-Scholes world” (Leland 1980, p. 580), a world in which market conditions were as posited by option theory. As portfolio insurance was molded from idea to product, the underlying theory was developed to incorporate some of reality’s imperfections. — Donald MacKenzie, An Engine, Not a Camera, 797

Categorization

• XREF: Illustrates the core performativity theme that theory and practice co-evolve as models confront messy reality.