Financial economics plays a far more prominent role in the training of economists than it did even a few years ago. This change is generally attributed to the parallel transformation in financial markets that has occurred in recent years. Assets worth trillions of dollars are traded daily in markets for derivative securities, such as options and futures, that hardly existed a decade ago. However, the importance of these changes is less obvious than the changes themselves. Insofar as derivative securities can be valued by arbitrage, such securities only duplicate primary securities. For example, to the extent that the assumptions underlying the Black–Scholes model of option pricing (or any of its more recent extensions) are accurate, the entire options market is redundant because by assumption the payoff of an option can be duplicated using stocks and bonds. The same argument applies to other derivative securities markets. Thus it is arguable that the variables that matter most – consumption allocations – are not greatly affected by the change in financial markets. Along these lines one would no more infer the importance of financial markets from their volume of trade than one would make a similar argument for supermarket clerks or bank tellers based on the fact that they handle large quantities of cash.

In questioning the appropriateness of correlating the expanding role of finance theory to the explosion in derivatives trading, we are in the same position as the physicist who demurs when journalists express the opinion that Einstein's theories are important because they led to the development of television.