Black-Scholes was first written down in the early 1970s but its story starts earlier than that, in the Dojima Rice Exchange in 17th Century Japan where futures contracts were written for rice traders. A simple futures contract says that I will agree to buy rice from you in one year’s time, at a price that we agree right now. By the 20th Century the Chicago Board of Trade was providing a marketplace for traders to deal not only in futures but in options contracts. An example of an option is a contract where we agree that I can buy rice from you at any time over the next year, at … Continue reading Tim Harford