ABSTRACT

Options were used by the Phoenicians five and a half thousand years ago to enable choice for merchants to buy or sell products but only if the ship arrived, given tempests, pirates, and war. 1 Buy or sell obligations were therefore only activated if the ship arrived in port. Similarly, Thales in ancient Greece used options to rent olive presses, but he only rented them if the olive season was a good one. Options to buy or sell seventeenth century Dutch tulips at a fixed price at some future time only failed because of inadequate market clearing mechanisms and settlement procedures to minimize credit risk and default.