Donald MacKenzie & Yuval Millo — Constructing a Market, Performing Theory

81 published claims from this book.

• A marketwide price anomaly persists because selling under-hedged puts is collectively sanctioned
• A pricing model runs inside the exchange’s automated trading machinery.
• A socialist father shaped the founder of Chicago’s capitalist futures exchange
• American law defined legitimate futures by physical delivery and outlawed cash settlement
• Baker’s anonymous network-study exchange was actually the CBOE.
• Black-Scholes option pricing won the 1997 Nobel Prize
• Black-Scholes price deviations fell from 2 percent to under 1 percent by 1986
• Black-Scholes price sheets faced mocking resistance from traders on the CBOE floor.
• Black-Scholes theory erased the stigma of options as gambling
• Building a new market required mobilizing existing exchange members through moral suasion.
• Cash-settled index futures were barred by legal logic until decades into the century
• Chicago’s options-market culture aided the Anglo-American capital-market model’s global ascent
• Clearinghouse interdependence made a single default able to collapse the whole exchange
• Clearinghouse mutualization makes a single member’s failure a system-wide contagion risk.
• Collective institutional trauma, not objective risk, sustains the volatility skew
• Consulting economists reframed options as legitimate investor strategy for regulatory approval
• Creating the CBOE required costly unpaid collective effort by exchange members
• Early CBOE options traded at prices wildly above Black-Scholes values
• Economic action as distributed cognition is what makes embedded theory genuinely performative.
• Economic theory helped restore legitimacy to banned financial derivatives
• Economic theory succeeded in derivatives markets partly by making markets conform to it
• Economic theory, not trader demand, forged the proposal for the stock-options exchange
• Economics simplifies and disembeds market participants to become applicable.
• Efficient-markets and random-walk theory legitimized options against their scandalous reputation.
• Efficient-markets theory helped legitimate options trading that regulators had long banned
• Even in financial institutions, calculative and noncalculative agencies are inextricably mixed.
• Face-to-face repetition creates a moral economy enforcing cooperativeness on trading floors.
• Financial derivatives grew from nothing to $108 trillion by 2000
• Financial derivatives grew from obscurity to $108 trillion notional value in three decades
• Implied volatility concepts and calculation devices are constitutive of economic action
• Implied volatility turned options of disparate stocks into one comparable metric.
• Index option prices since 1988 embed an irrational crash premium beyond any plausible expectation
• Individually rational risk-shifting trades become immoral and systemic-risk threats if widely practiced.
• Institutional backing saved the Chicago futures market from collapse at its 1972 opening.
• Margin rules gave clearing firms new power to rein in unhedged traders
• Market microstructure shapes price behavior independently of underlying fundamentals
• Market microstructure shapes whether arbitrage opportunities persist or vanish
• Market prices converged toward Black-Scholes values within a few years of the CBOE’s founding
• Markets can be performatively constructed by agents who are not atomistic homo economicus
• Monetary and financial markets remain inseparable from the economy of regard
• Morally atomistic markets may be achievable only in silicon, not in humans
• New derivatives markets initially lacked liquidity and depended on founders’ moral suasion to survive
• Open-outcry exchange trust depends on exclusion and threat of refusal, not enforceable contracts
• Option price must equal the cost of a continuously adjusted replicating portfolio.
• Option prices equal the cost of a portfolio that replicates the option’s payoff
• Option pricing converged on economic models through traders copying other users.
• Option pricing theory did not describe markets but remade them in its own image
• Performativity and efficiency both potentially explain the formula’s growing accuracy.
• Performativity can only be judged through historical study of markets
• Performativity claims must be distinguished from the market merely converging on a correct theory.
• Performativity has limits that historical crises can break, producing theory-resistant market anomalies
• Performativity has real limits; markets still need culture and trust
• Post-1987 margin rules replaced log-normal pricing assumptions with fat-tailed stable distributions
• Post-1987 option pricing may be rational given the crash’s trauma, not irrational.
• Pre-Black-Scholes option models relied on unmeasurable parameters
• Pure rational self-interest cannot explain founding a derivatives exchange
• Purely atomistic economic actors may only exist as software, not humans.
• Rational-egoist theory cannot explain why anyone founded the CBOE
• Regulatory and technical changes made Black-Scholes assumptions come true
• Small pits formed pricing cliques that stabilized quotes, to firms’ annoyance.
• Spanning multiple options markets forced firms to adopt pricing models
• The 1987 crash exposed how fragile the options clearing system was to extreme prices.
• The 1987 crash made its own portfolio-insurance inventor fear he caused a world crisis
• The 1987 crash permanently shifted the S&P options market’s implied distribution toward crash expectations.
• The 1987 crash traumatized U.S. derivatives markets in ways absent elsewhere.
• The 1987 crash was a 27-sigma event under the log-normal model.
• The 1987 crash was a multi-sigma event under the log-normal assumption.
• The 1987 crash’s minimal economic impact hides how traumatic it was for market participants.
• The arbitrage argument produces the Black-Scholes partial differential equation.
• The Black-Scholes equation’s assumption of known underlying prices failed on NASDAQ’s dealer structure.
• The Black-Scholes model gained market traction slowly, not through instant self-fulfilling prophecy.
• The Black-Scholes theory reframed options trading as legitimate efficient pricing rather than gambling.
• The CBOE automated away the missing stock price by calculating a synthetic underlying.
• The growth and risk of options trading made pricing models indispensable
• The log-normal assumption may have been self-undermining through portfolio insurance.
• The market changed to fit Black-Scholes rather than the reverse
• Traders made costly unremunerated commitments to build the exchange, resembling collective action.
• Traders using the pricing model actively made market prices conform to the model
• Traders’ arbitrage activity made the pricing model appear empirically true
• Unmanageable information flows produce a pathological collective panic
• US securities regulators viewed options trading with extreme hostility into the 1970s