Apparently, CBOE was founded in 1973 and opened on 1st January that year (source = Google), to start trading listed options.

The famous Black-Scholes paper was published also in 1973.

I am wondering if there is any direct link there?

When I first saw this, my initial thoughts were that the paper was published first and the CBOE opening and option trading followed as a reaction (my rationale for thinking this is that once the paper had been published, there finally was an "official" way to price options, and so it probably would have seemed a good business to come up with an options exchange).

However, seeing that CBOE was apparently opened on 1st January 1973 invalidates my thinking above: seems like CBOE was first with the B-S paper thereafter: although could it be that the B-S paper was in the making in 1972 already and somehow the opening of CBOE was timed for the paper release?

Does anyone know the story of CBOE and whether there is any link to Merton, Black & Scholes and their paper?

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    $\begingroup$ The story that I heard went like this: before 1973, equity options were all traded OTC, and every trade could be cutomized and bespoke. The Put and Call Brokers and Dealers Association, Inc (PCBDA) was created in 1934 nycompanyregistry.com/companies/… and seems to be still around, but not doing much. In 1968, the Chicago Board of Trade (CBOT) saw falling revenues from futures trading, and decided to look for various ways to create new business. $\endgroup$ Aug 9, 2021 at 18:43
  • $\begingroup$ So CBOT created CBOE in 1973 as a marketplace for listed standardized equity options, and also the Options Clearing Corporation (OCC) for centralized clearing, so CBOT would make money from these formerly OTC products. Of course it took years of preparation. $\endgroup$ Aug 9, 2021 at 18:47
  • $\begingroup$ Also in December 1969 Hans R. Stoll published citeseerx.ist.psu.edu/viewdoc/… The Relationship Between Put and Call Option Prices . Stoll didn't realize that the put-call parity was published before. He wrote "The growth in the volume of stock market activity and the increased sophistication of investors has brought with it greater interest and activity in the related, albeit more complicated, put and call option market". Was this prompted by the CBOE looking for new products? Perhaps. $\endgroup$ Aug 9, 2021 at 18:52
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    $\begingroup$ Not sure if anyone has referenced this golden note yet: 3197d6d14b5f19f2f440-5e13d29c4c016cf96cbbfd197c579b45.r81.cf1.r… $\endgroup$ Aug 9, 2021 at 20:04
  • $\begingroup$ Thanks @Magicisinthechain , this is very interesting. I'd like to point out that BS73 cs.princeton.edu/courses/archive/fall09/cos323/papers/… says: "Received for publication November 11, 1970. Final version received May 9, 1972. The inspiration for this work was provided by Jack L. Treynor (1961a, 1961b)." (and it cites two unpublished manuscripts by Treynor.) $\endgroup$ Aug 9, 2021 at 22:34

1 Answer 1


In the essay "Futures and Options Markets in the Evolution of Stock Exchanges" William Brodsky (CBOE head) writes "The formula (Black-Scholes) had no relation to the launch of the CBOE. It was intended to assist corporations in valuing options they had granted to their executives".

However, he continues that the development of the model, which was quickly adopted by traders, fostered the development of the listed options industry. Presumably the growth of this industry also helped popularize the model.

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    $\begingroup$ @PatrickT Exactly, as I tried to explain, Brodsky thinks the BS formula contributed to the growth of the industry. I just speculated that perhaps the growth of the industry also helped make the formula so well-known. $\endgroup$
    – fes
    Aug 10, 2021 at 5:41

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