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Amsterdam as the cradle of modern futures and options trading ...

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step from forwards and futures to options trading. Indeed Amsterdam grain dealers had used. both forwards and options in the 1550s and 1560s. ...

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Amsterdam as the cradle of modern futures and options trading 16021688Page 1Amsterdam as the cradle of modern futures and options trading 155016501By Oscar Gelderblom and Joost Jonker Utrecht University IntroductionTrade and risk are inseparable. Consequently from the dawn of history merchants have sought means to alleviate and if possible eliminate the cost of risk by devising strategies to secure stability of supply and price. The simplest way to reduce risk is spreading it over various types of commodities commercial activities or business partners. More complicated devices for risk management include contracts for future delivery. Forward transactions imply the buying and selling for future delivery and payment. Related to this type of contract are futures in effect standardized forward contracts that can be sold to third parties. Perhaps the most sophisticated means to manage risk are options which constitute the right to buy or sell in the future. Trading these derivatives allows merchants to leverage risk.Traditionally economic historians have equated trade in derivatives with straight bets and condemned them as windhandel i.e. a purely speculative paper trade engendering no end of commercial mischief.2This largely negative verdict rooted both in contemporary condemnations of speculative practices and in the classification of forward trading under Roman Law as taking chances.3Consequently derivatives and bets were tarred with the samebrush on the basis of common features the elements of chance and speculation rather than set apart by what separates them i.e. the ability to manage risk. The revival and subsequent explosive growth of derivatives trading since the 1980s has led to a marked change in appreciation. While accepting the potential dangers of ever more complex derivatives constructions economists and central bankers alike emphasize the importance of such instruments to manage timerelated risks increasing the productivity of capital and economic flexib ...

Source: www.lowcountries.nl

 

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