Equity Markets and Portfolio Analysis

CHAPTER 16 Options Markets

Introduction: Short History of the Derivative Market

In the 1840s, Chicago emerged as a transportation and distribution center for agriculture products. Midwestern farmers transported and sold their products to wholesalers and merchants in Chicago, who often would store and later transport the products by either rail or the Great Lakes to population centers in the East. Partly because of the seasonal nature of grains and other agriculture products and partly because of the lack of adequate storage facilities, farmers and merchants began to use forward contracts as a way of circumventing storage costs and pricing risk. These contracts were agreements in which two parties agreed to exchange commodities for cash at ...