A short history of derivative security markets

Abstract

In this chapter the pioneering works on option pricing of (1900) and (1908) are put into the historical context. The history of derivatives is traced back to the origins of commerce in Mesopotamia in the fourth millennium BC. After the collapse of the Roman Empire, contracts for the future delivery of commodities continued to be used in the Byzantine Empire in the Eastern Mediterranean and they survived in canon law in Western Europe. During the Renaissance, financial markets became more sophisticated in Italy and the Low Countries. Contracts for the future delivery of securities were used on a large scale for the first time in Antwerp and then Amsterdam in the sixteenth century. Derivative trading on securities spread from Amsterdam to England and France at the end of the seventeenth century, and from France to Germany in the early nineteenth century. Around 1870, financial practitioners developed graphical tools to represent derivative contracts. Profit charts made derivatives accessible to young scientists, including Louis Bachelier and Vinzenz Bronzin, who had the mathematical knowledge for the rigorous analysis of derivative pricing. © 2009 Springer-Verlag Berlin Heidelberg.