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Option Pricing Methods in the Late 19th Century

27 Pages Posted: 29 Aug 2016 Last revised: 5 Sep 2017

George Dotsis

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

Date Written: January 10, 2017

Abstract

This paper examines option pricing methods used by investors in the late 19th century. Based on the book called “PUT-AND-CALL” written by Leonard R. Higgins in 1896 it is shown that investors in that period used routinely the put-call parity for option conversion and static replication of option positions and they had developed sophisticated option pricing techniques for determining the prices of at-the-money and slightly out-of-the-money and in-the-money short-term calls and puts. Option traders in the late 19th century understood that the expected return of the underlying does not affect the price of an option and viewed options mainly as instruments to trade volatility.

Keywords: Straddle, absolute deviation, put-call parity

JEL Classification: G13

Suggested Citation

Dotsis, George, Option Pricing Methods in the Late 19th Century (January 10, 2017). Available at SSRN: https://ssrn.com/abstract=2831362 or http://dx.doi.org/10.2139/ssrn.2831362

George Dotsis (Contact Author)

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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