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

Author

Listed:
  • Antoine Parent

    (LED - Laboratoire d'Economie Dionysien - UP8 - Université Paris 8 Vincennes-Saint-Denis, IXXI - Institut Rhône-Alpin des systèmes complexes - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UJML - Université Jean Moulin - Lyon 3 - Université de Lyon - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - INSA Lyon - Institut National des Sciences Appliquées de Lyon - Université de Lyon - INSA - Institut National des Sciences Appliquées - Inria - Institut National de Recherche en Informatique et en Automatique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes, OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Pierre-Charles Pradier

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

We provide the first ever quantitative analysis of pricing and profitability of option trading in Paris from 1843 to 1939 based on a 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: (1.) 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.

Suggested Citation

  • Antoine Parent & Pierre-Charles Pradier, 2022. "A la Recherche du Temps Perdu : Legal and Quantitative analysis of the First Documented Option Market - Paris 1844-1939," Post-Print halshs-03815575, HAL.
    • Handle: RePEc:hal:journl:halshs-03815575
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03815575
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    References listed on IDEAS

    as
    1. Bordo, Michael D. & Hautcoeur, Pierre-Cyrille, 2007. "Why didn't France follow the British stabilisation after World War I?," European Review of Economic History, Cambridge University Press, vol. 11(1), pages 3-37, April.
    2. Michael D. Bordo & Pierre-Cyrille Hautcoeur, 2003. "Why didn't France follow the British Stabilization after World War One ?," DELTA Working Papers 2003-15, DELTA (Ecole normale supérieure).
    3. Steven D. Levitt, 2004. "Why are gambling markets organised so differently from financial markets?," Economic Journal, Royal Economic Society, vol. 114(495), pages 223-246, April.
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    More about this item

    Keywords

    Option pricing; financial risk management; betting markets; alternative investments;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-

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