A la Recherche du Temps Perdu: Legal and Quantitative Analysis of the First Documented Option Market - Paris 1844-1939

Antoine Parent and Pierre-Charles Pradier

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: We provide the first ever quantitative analysis of pricing and profitability of option trading in Paris from 1843 to 1939 based on data source featuring more than 75,000 option prices. Using a special case of the Black (1976) option pricing model, we show that, albeit options were consistently undervalued, the market was still profitable for all the parties. We prove that the exceptional longevity of the Paris options market was based on a 4-pillars market microstructure: (I.) systematic underpricing of cheap options to attract gamblers, (2.) administration of settlement price by the brokers' syndicate, (3.) parimutuel-like betting operation and safety thanks to (4.) a sophisticated risk management in the position-taking style which minimized actual clearing price manipulation

Keywords: option pricing; financial risk management; betting markets; alternative investments (search for similar items in EconPapers)
JEL-codes: G12 G14 N23 N24 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2022-10
New Economics Papers: this item is included in nep-his
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Downloads: (external link)
http://mse.univ-paris1.fr/pub/mse/CES2022/22018.pdf (application/pdf)
https://shs.hal.science/halshs-03815575

Related works:
Working Paper: A la Recherche du Temps Perdu: Legal and Quantitative analysis of the First Documented Option Market - Paris 1844-1939 (2022)
Working Paper: A la Recherche du Temps Perdu: Legal and Quantitative analysis of the First Documented Option Market - Paris 1844-1939 (2022)
Working Paper: A la Recherche du Temps Perdu: Legal and Quantitative analysis of the First Documented Option Market - Paris 1844-1939 (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:22018

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