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Derivative Pricing 60 Years before Black-Scholes: Evidence from the Johannesburg Stock Exchange

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  • LYNDON MOORE
  • STEVE JUH

Abstract

We obtain daily data for warrants traded on the Johannesburg Stock Exchange between 1909 and 1922, and for a broker's call option quotes on stocks from 1908 to 1911. We use this new data set to test how close derivative prices are to Black-Scholes (1973) prices and to compute profits for investors using a simple trading rule for call options. We examine whether investors exercised warrants optimally and how they reacted to extensions of the warrants' durations. We show that long before the development of the formal theory, investors had an intuitive grasp of the determinants of derivative pricing. Copyright 2006 by The American Finance Association.

Suggested Citation

  • Lyndon Moore & Steve Juh, 2006. "Derivative Pricing 60 Years before Black-Scholes: Evidence from the Johannesburg Stock Exchange," Journal of Finance, American Finance Association, vol. 61(6), pages 3069-3098, December.
  • Handle: RePEc:bla:jfinan:v:61:y:2006:i:6:p:3069-3098
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    Cited by:

    1. Anne L. Murphy, 2009. "Trading options before Black-Scholes: a study of the market in late seventeenth-century London -super-1," Economic History Review, Economic History Society, vol. 62(s1), pages 8-30, August.
    2. Carola Frydman & Raven E. Saks, 2010. "Executive Compensation: A New View from a Long-Term Perspective, 1936--2005," Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 2099-2138.
    3. Flandreau, Marc & Oosterlinck, Kim, 2012. "Was the emergence of the international gold standard expected? Evidence from Indian Government securities," Journal of Monetary Economics, Elsevier, vol. 59(7), pages 649-669.
    4. repec:eee:jbfina:v:81:y:2017:i:c:p:166-171 is not listed on IDEAS
    5. Turner, John D., 2014. "Financial history and financial economics," QUCEH Working Paper Series 14-03, Queen's University Belfast, Queen's University Centre for Economic History.
    6. repec:bla:jfnres:v:40:y:2017:i:3:p:401-427 is not listed on IDEAS

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