Abstract

Recent finance literature attributes the development of derivative instruments to technological advances, and improved mathematical models for predicting option prices. This paper explores the role of social ethics in the acceptance of financial derivatives. The relationship between utilitarian ethical principles and the demise of turn-of-the-century bucket shops is contrasted with modern tolerance of financial derivatives based upon libertarian ethical precepts. Our conclusion is that a change in social ethics also facilitated the growth in trading in modern financial derivatives.