Negotiating a Market, Performing Theory: The Historical Sociology of a Financial Derivatives Exchange

Abstract

This analysis of the origins and development of a key financial derivatives market, the Chicago Board Options Exchange, suggests that social interaction in such markets generates trust, permits solution of collective action problems, and affects pricing. The growing cognitive complexity of option trading implies that the unaided human being cannot be homo economicus: material means of calculation have become constitutive of economic action, and economic theory has become performative. The empirical history of option pricing falls into three distinct periods, and the paper postulates that "cultural memory" of the 1987 crash explains the pattern of pricing in the most recent period.

Keywords: financial derivatives, options, CBOE, pricing models, Black-Scholes, economic theory as performative, sociology of scientific knowledge, historical sociology

JEL Classification: N20, D81, G14