An example of the relevance of the work of Scholes and Black is the explosive growth in options trading at such places as the Chicago Board Options Exchange, which introduced trade in options in April 1973, one month before publication of the option-pricing formula. Today, thousands of traders and investors use the formula every day to value stock options in markets throughout the world. It was particularly remarkable since the mathematics used to derive the formula were not part of the standard training of practitioners or academic economists at that time. The ability to use options and other derivatives to manage risks is quite valuable. For instance, portfolio managers use 'put' options to reduce the risk of large declines in share prices.
Companies use options and other derivative instruments to reduce risk.
Banks and other financial institutions use the method developed by Black, Merton and Scholes to develop and determine the value of new products, sell tailor-made financial solutions to their customers, as well as to reduce their own risks by trading in financial markets. Today, mathematicians, economists and computer experts are extending the work to find new ways to value options. Many of them are being trained in special programs in financial mathematics, such as the one recently begun at the University of Chicago.