Put-Call Parity and the Development of the Modern Mortgage
Posted: 9 Apr 1997
Date Written: February 1997
The recent explosion of financial innovation, by placing pressure on the existing but inconsistent legal categories, raises difficult legal issues. This phenomenon, which is well recognized in both legal and financial literatures, is not as new as is widely believed. Recent developments represent a difference in degree, not kind, with earlier developments. Using the put-call parity theorem, I describe how the ability to convert financial positions between stock, debt and options has been used since ancient times to circumvent legal rules on usury. In addition, I use the put- call parity theorem to trace the development of the modern mortgage back to Medieval England.
JEL Classification: G18, K22, N24
Suggested Citation: Suggested Citation