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


  • Moore is from Victoria University of Wellington. Juh is from Lehman Brothers. The paper was written when both authors were at Northwestern University. The authors would like to thank Kathleen Hagerty for many long, detailed explanations of derivative pricing theory and excellent suggestions to improve the paper. Ran Abramitzky, Andrew Hertzberg, Jon Huntley, Robert Korajczyk, Robert McDonald, Joel Mokyr, Warwick Moore, Eugene Orlov, Ronnie Sadka, Ellis Tallman, Ryan White, and an anonymous referee all provided excellent advice and suggestions, as did seminar participants at Northwestern University and at the European Social Science History Conference. Discussions with officials of the Johannesburg Stock Exchange were very useful, as were the data they provided. All errors remain our own. The financial support of the Economic History Association and from a Northwestern University Dissertation Year Fellowship are gratefully acknowledged.


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.