It may be a surprise to some of the current generation of LME traders, but it’s not that long ago - well, a generation, I guess - that the LME options market was probably best described as somewhat chaotic. Yes, there were those who appreciated the potential of the product, but trying to trade rationally in an uncleared market, and to do it in an environment of rolling prompts, with no prime monthly date as a fixed point was frankly not particularly appropriate. Add to that that most trades were done on the basis of premium rather than volatility as the driving price influence, and it’s not surprising that valuation was not much more than a lottery.
But things were happening in the background, and those who understood the theories of pricing and valuation began to exert a greater influence, culminating in the LME setting up the traded option contracts, which turned a previously somewhat arcane area of the market into an extremely powerful tool for both hedgers and speculators.
Influential amongst those who brought order to chaos was Paul Shuman, of whose death from a long-standing illness we learned last week.
Paul was a well-known figure, with Rudolf Wolff/Tower Commodities and Fortis Bank. It’s difficult to over-estimate the change that came about in the options market during this period, and Paul was one of the leading lights; a succession of those who worked with him demonstrate the influence he had.
But he was not just an options specialist; he was a Member of the LME Committee, when such existed, and later a Board Member of the LME. He was also a sought-after arbitrator and expert witness in many LME-based disputes. Inevitably, it feels, he was a major influence on the LME Options Committee and a member of long-standing of the Arbitration Committee. As a knowledgeable and well-respected voice, he will be sadly missed.
Our sympathies and condolences go to his family.