The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Option Pricing Theory

  • Jonathan E. IngersollJr.
Reference work entry


Financial contracting is as old as human history. Deeds for the sale of land have been discovered that date to before 2800 bc. The Code of Hammurabi (c1800 bc) regulated, among other things, the terms of credit. Contingent contracting was also common. Under the Code crop failure due to storm or drought served to cancel that year’s interest on a land loan. The trading of the first options is probably equally ancient.

This is a preview of subscription content, log in to check access.


  1. Bachelier, L. 1900. Théorie de la speculation. Annales de l’Ecole Normale Superieure. Trans. A.J. Boness in The random character of stock market prices, ed. P.H. Cootner. Cambridge, MA: MIT Press, 1967.Google Scholar
  2. Black, F. 1976. The pricing of commodity contracts. Journal of Financial Economics 3(1–2): 167–179.CrossRefGoogle Scholar
  3. Black, F., and M.J. Scholes. 1973. The pricing of options and corporate liabilities. Journal of Political Economy 81(3): 637–654.CrossRefGoogle Scholar
  4. Boness, A.J. 1964. Elements of a theory of stock option value. Journal of Political Economy 72(2): 163–175.CrossRefGoogle Scholar
  5. Brennan, M.J. 1979. The pricing of contingent claims in discrete time models. Journal of Finance 34(1): 53–68.CrossRefGoogle Scholar
  6. Brennan, M.J., and E.S. Schwartz. 1977. The valuation of American put options. Journal of Finance 32(2): 449–462.CrossRefGoogle Scholar
  7. Cox, J.C., and S.A. Ross. 1976a. The valuation of options for alternative stochastic processes. Journal of Financial Economics 3(1–2): 145–166.CrossRefGoogle Scholar
  8. Cox, J.C., and S.A. Ross. 1976b. A survey of some new results in financial option pricing policy. Journal of Finance 31(2): 383–402.CrossRefGoogle Scholar
  9. Cox, J.C., and M. Rubinstein. 1985. Options markets. Englewood Cliffs, NJ: Prentice-Hall.Google Scholar
  10. Cox, J.C., S.A. Ross, and M. Rubinstein. 1979. Option pricing: A simplified approach. Journal of Financial Economics 7(3): 229–263.CrossRefGoogle Scholar
  11. Cox, J.C., J.E. Ingersoll, and S.A. Ross. 1985a. An intertemporal general equilibrium model of asset prices. Econometrica 53(2): 363–384.CrossRefGoogle Scholar
  12. Cox, J.C., J.E. Ingersoll, and S.A. Ross. 1985b. A theory of the term structure of interest rates. Econometrica 53(2): 385–407.CrossRefGoogle Scholar
  13. Geske, R. 1977. The valuation of corporate liabilities as compound options. Journal of Financial and Quantitative Analysis 12(4): 541–552.CrossRefGoogle Scholar
  14. Harrison, J.M., and D. Kreps. 1979. Martingales and arbitrage in multiperiod securities markets. Journal of Economic Theory 20(3): 381–408.CrossRefGoogle Scholar
  15. Ingersoll, J.E. 1976. A theoretical and empirical investigation of the dual purpose funds: an application of contingent-claims analysis. Journal of Financial Economics 3(1–2): 83–123.CrossRefGoogle Scholar
  16. Ingersoll, J.E. 1977. A contingent-claims valuation of convertible securities. Journal of Financial Economics 4(3): 289–322.CrossRefGoogle Scholar
  17. Ingersoll, J.E. 1987. Theory of financial decision making. Totowa, NJ: Rowman and Littlefield.Google Scholar
  18. Kassouf, S.T. 1969. An econometric model for option price with implications for investors’ expectations and audacity. Econometrica 37(4): 685–694.CrossRefGoogle Scholar
  19. Leland, H.E. 1985. Option pricing and replication with transactions costs. Journal of Finance 40(5): 1283–1301.CrossRefGoogle Scholar
  20. Mason, S.P., and R.C. Merton. 1985. The role of contingent claims analysis in corporate finance. In Recent advances in corporate finance, ed. E.I. Altman and M.G. Subramanyam. Homewood: Richard D. Irwin.Google Scholar
  21. Merton, R.C. 1973. The theory of rational option pricing. Bell Journal of Economics 4(Spring): 141–183.CrossRefGoogle Scholar
  22. Merton, R.C. 1976. Option pricing when underlying stock returns are discontinuous. Journal of Financial Economics 3(1–2): 125–144.CrossRefGoogle Scholar
  23. Parkinson, M. 1977. Option pricing: The American put. Journal of Business 50(1): 21–36.CrossRefGoogle Scholar
  24. Rubinstein, M. 1976. The valuation of uncertain income streams and the pricing of options. Bell Journal of Economics 7(2): 407–425.CrossRefGoogle Scholar
  25. Samuelson, P.A. 1965. Rational theory of warrant pricing. Industrial Management Review 6(2): 13–32.Google Scholar
  26. Samuelson, P.A., and R.C. Merton. 1969. A complete model of warrant pricing that maximizes utility. Industrial Management Review 10(Winter): 17–46.Google Scholar
  27. Scholes, M.J. 1976. Taxes and the pricing of options. Journal of Finance 31(2): 319–332.CrossRefGoogle Scholar
  28. Smith, C.W. 1976. Option pricing: A review. Journal of Financial Economics 3(1–2): 3–51.CrossRefGoogle Scholar
  29. Sprenkle, C.M. 1961. Warrant prices as indicators of expectations and preferences. Yale Economic Essays 1(2): 178–231. Reprinted in The random character of stock market prices, ed. P.H. Cootner. Cambridge, MA: MIT Press, 1967.Google Scholar
  30. Stoll, H.R. 1969. The relationship between put and call option prices. Journal of Finance 24(5): 801–824.CrossRefGoogle Scholar
  31. Thorpe, E.O. 1973. Extensions of the Black–Scholes option model. Bulletin of the International Statistical Institute, Proceedings of the 39th Session, 522–529.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Jonathan E. IngersollJr.
    • 1
  1. 1.