Contracts whose value depends on something else.
11 topics · 13 curated works
No prior grounding assumed.
Characteristics and Risks of Standardized Options
The Options Clearing Corporation · 1994
Sets out, contract by contract, what an options buyer or writer is actually exposed to, arguing the asymmetric payoff of options makes them behave…
+1 more at this level
Assumes you know the vocabulary.
Derivatives in a Dynamic Environment
Myron S. Scholes · 1997
Traces how Black-Scholes-Merton option pricing seeded three interlocking industries -- exchange-traded derivatives, OTC synthetic products and…
+3 more at this level
Primary sources and full treatments.
Theory of Rational Option Pricing
Robert C. Merton · 1973
Generalises the Black-Scholes option pricing framework, relaxing assumptions on dividends, interest rates and early exercise, and extends the same…
+6 more at this level
12 of 13 works
The Options Clearing Corporation
Sets out, contract by contract, what an options buyer or writer is actually exposed to, arguing the asymmetric payoff of options makes them behave nothing like the underlying stock they reference.
Franklin R. Edwards
Traces how a fund run by Nobel laureates and star traders lost nearly all its capital in weeks, arguing the scale of LTCM's leverage, not any single bad trade, is what turned an ordinary bad quarter into a near-systemic event.
link checked 17 Sept 2026Myron S. Scholes
Traces how Black-Scholes-Merton option pricing seeded three interlocking industries -- exchange-traded derivatives, OTC synthetic products and academic derivatives research -- each amplifying the others' growth since the 1970s.
link checked 17 Sept 2026Robert C. Merton
Reviews a quarter-century of applying option-pricing theory beyond listed options themselves, to corporate liabilities, loan guarantees and real investment decisions, treating option pricing as a general tool for valuing contingent claims.
link checked 17 Sept 2026Gary Gorton & K. Geert Rouwenhorst
Builds a long-run index of collateralized commodity futures returns and finds they have historically matched equity returns with lower correlation to stocks and bonds, and tend to do best exactly when equities do worst.
link checked 17 Sept 2026René M. Stulz
Argues the credit default swap market did not cause the 2008 crisis and mostly functioned as designed through it, against the popular narrative that CDS speculation was a primary driver of the panic.
link checked 17 Sept 2026Robert C. Merton
Generalises the Black-Scholes option pricing framework, relaxing assumptions on dividends, interest rates and early exercise, and extends the same continuous-time replication logic to price corporate liabilities as options on firm value.
link checked 17 Sept 2026Fischer Black & Myron S. Scholes
Derives a closed-form formula for the price of a European option by constructing a continuously-rebalanced hedge that eliminates risk, showing an option's value depends on the underlying's volatility rather than its expected return.
link checked 17 Sept 2026Kenneth A. Froot, David S. Scharfstein & Jeremy C. Stein
A firm should hedge to keep internally generated cash flow from falling short of its investment needs, because external financing is costly enough that hedging is really about protecting the investment plan rather than smoothing earnings.
link checked 17 Sept 2026Robert F. Engle & Joshua V. Rosenberg
Measures how an option's delta-hedge sensitivity to volatility changes -- its gamma exposure to the volatility process itself -- behaves under GARCH models, and finds this exposure is priced and varies systematically with the option's moneyness and maturity.
link checked 17 Sept 2026Bernard Dumas, Jeff Fleming & Robert E. Whaley
Tests whether letting Black-Scholes implied volatility vary by strike and maturity -- the volatility smile -- actually improves out-of-sample option pricing and hedging, and finds a naive constant-volatility model does about as well.
link checked 17 Sept 2026Jun Liu, Francis A. Longstaff & Ravit E. Mandell
Decomposes the swap spread into a default-risk component and a separate liquidity/convenience component, and finds the liquidity component dominates, so swap spreads track funding conditions more than the credit risk of swap counterparties.
link checked 17 Sept 2026