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Option Pricing Theory: Historical Perspectives

  1. Robert A. Jarrow

Published Online: 15 MAY 2010

DOI: 10.1002/9780470061602.eqf01014

Encyclopedia of Quantitative Finance

Encyclopedia of Quantitative Finance

How to Cite

Jarrow, R. A. 2010. Option Pricing Theory: Historical Perspectives. Encyclopedia of Quantitative Finance. .

Author Information

  1. Cornell University, Ithaca, NY, USA

Publication History

  1. Published Online: 15 MAY 2010

Abstract

This article traces the history of the option pricing theory from the turn of the twentieth century to the present. This historical perspective is divided into four sections. The first, entitled “the early years”, discusses the development of option pricing theory before the Black–Scholes–Merton model (1973). The second section discusses the Black–Scholes–Merton model and its extensions. The third section discusses the Heath–Jarrow–Morton model for pricing interest rate derivatives. The last section discusses credit risk derivative pricing models.

Keywords:

  • Black–Scholes model;
  • HJM model;
  • option pricing;
  • interest rate derivatives;
  • credit derivatives