Option Pricing Methods in the City of London during the Late 19th Century

33 Pages Posted: 29 Aug 2016 Last revised: 17 Dec 2018

See all articles by George Dotsis

George Dotsis

National and Kapodistrian University of Athens - Faculty of Economics; Essex Finance Centre, Essex Business School, University of Essex

Date Written: December 10, 2018

Abstract

This paper examines through the lens of modern option pricing a largely forgotten option trading manual called “The PUT-and-CALL” written in 1896 by a London trader named Leonard R. Higgins. It argues that City of London traders in the late nineteenth century had a considerably more advanced understanding of option pricing than previously thought. They used routinely the put-call parity for option conversion and static replication of option positions, developed sophisticated techniques for determining the prices of short-term calls and puts and viewed options mainly as instrument to trade volatility. Higgins’s book is used as a historical example to discuss the relationship between academic research and market practices.

Keywords: Straddle, absolute deviation, put-call parity

JEL Classification: G13

Suggested Citation

Dotsis, George, Option Pricing Methods in the City of London during the Late 19th Century (December 10, 2018). Available at SSRN: https://ssrn.com/abstract=2831362 or http://dx.doi.org/10.2139/ssrn.2831362

George Dotsis (Contact Author)

National and Kapodistrian University of Athens - Faculty of Economics ( email )

Greece

HOME PAGE: http://sites.google.com/site/gdotsis/

Essex Finance Centre, Essex Business School, University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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