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Option Pricing Methods in the Late 19th Century

28 Pages Posted: 29 Aug 2016 Last revised: 9 Jan 2018

George Dotsis

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

Date Written: January 9, 2018

Abstract

This paper reviews a largely forgotten option trading manual called “The PUT-and-CALL” written by Leonard R. Higgins in 1896, and argues that 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 and developed sophisticated option pricing techniques for determining the prices of short-term calls and puts. Traders in the late nineteenth century understood that option prices do not depend on the expected return of the underlying 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 9, 2018). 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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