Put-call parity, the triple contract, and approaches to usury in medieval contracting

Arthur J. Wilson and Geetae Kim

Financial History Review, 2015, vol. 22, issue 2, 205-233

Abstract: In this article we use put-call parity to show that ambiguity about ownership played a role in medieval businessmen's efforts to circumvent the Catholic Church's usury restrictions. That ambiguity created fertile ground for a financial innovation, the triple contract, that allowed some merchants to accomplish a kind of regulatory arbitrage. We also show that medieval clerics and merchants appear to have had at least an intuitive grasp of put-call parity, and that this insight shaped the Catholic Church's approach to medieval business contracts, and usury, nearly five centuries before put-call parity was described in the scholarly literature.

Date: 2015
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