The Black-Scholes Options Pricing Theory

There has perhaps been no other time in the history of economics and finance when a new financial theory was more timely and influential. Paul Samuelson and others had been working on the options and warrants issue in the 1960s, but the topic seemed to have little pressing need. However, by the end of the 1960s, a shrinking business in futures trading for the CBOT motivated the formation of a new market for options trading as a vehicle for its survival. Yet, only if such options contracts were standardized and if a model could be developed for the pricing of options as there had been a decade earlier for securities could the options market be successful and the derivative become an efficient and effective instrument for hedging risk. The CBOT could take care of the first precedent. The team of Fischer Black and Myron Scholes would take care of the second.