Deriving the Derivative

The anthropology of finance has been dominated by ethnographic field research and the performativity thesis advanced by Donald Mackenzie and Michel Callon. This essay takes a different tack and proposes a semiotic framework to look at the central concept in derivative finance, that of volatility. Volatility has also been increasingly important in our contemporary culture and politics of volatility, suggesting that the implications of the concept touch upon far more than just finance. I trace the development of the Black-Scholes model for pricing options from its initial use as a foundation for a “physics of finance” to its current use to calculate the “implied volatility” of trillions of dollars of derivative contracts on a daily basis. At the same time, the use of Black-Scholes to calculate implied volatility violates one of the fundamental presuppositions of the model, and I argue that instead of being part of a “physics of finance,” Black-Scholes now functions more like the discourse-indexical component of a “leaky grammar of prices.”