The revolution in trading and pricing derivative securities began in the early 1970’s. In 1973, the Chicago Board of Options Exchange started the trading of options in exchanges, though options had been regularly traded by financial institutions in the over-the-counter markets in earlier years. In the same year, Black and Scholes(1973) and Merton (1973) published their seminal papers on the theory of optionpricing. Since then the field of financial engineering has grown phenomenally. The Black–Scholes–Merton risk neutrality formulation of the option pricing theory is attractive because the pricing formula of a derivative deduced from their model is a function of several directly observable parameters (except one, which is the volatility parameter). The derivative can be priced as if the market price of the underlying asset’s risk is zero. When judged by its ability to explain the empirical data, the optionpricing theory is widely acclaimed to be the most successful theory not only in finance, but in all areas of economics. In recognition of their pioneering and fundamental contributions to the pricing theory of derivatives, Scholes and Merton were awarded the 1997 Nobel Prize in Economics.