IDEAS home Printed from https://ideas.repec.org/p/mse/cesdoc/22018.html
   My bibliography  Save this paper

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

Author

Listed:
  • Antoine Parent

    (Université Paris 8 -LED, OFCE - Sciences Po and CAC-IXXI (Cliometrics and Complexity) - Institut Rhône-Alpin des systèmes complexes)

  • Pierre-Charles Pradier

    (Centre d'Economie de la Sorbonne)

Abstract

We provide the first ever quantitative analysis of pricing and profitability of option trading in Paris from 1843 to 1939 based on 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: (I.) 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," Documents de travail du Centre d'Economie de la Sorbonne 22018, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:22018
    as

    Download full text from publisher

    File URL: http://mse.univ-paris1.fr/pub/mse/CES2022/22018.pdf
    Download Restriction: no
    File URL: https://shs.hal.science/halshs-03815575
    Download Restriction: no
    ---><---

    Other versions of this item:

    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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Campbell Leith & Eric Leeper, 2016. "Understanding Inflation as a Joint Monetary-Fiscal Phenomenon," Working Papers 2016_01, Business School - Economics, University of Glasgow.
    2. Eric M. Leeper & Todd B. Walker, 2012. "Perceptions and Misperceptions of Fiscal Inflation," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 255-299, National Bureau of Economic Research, Inc.
    3. Gardner, Leigh, 2015. "The curious incident of the franc in the Gambia: exchange rate instability and imperial monetary systems in the 1920s," Financial History Review, Cambridge University Press, vol. 22(3), pages 291-314, December.
    4. Leeper, E.M. & Leith, C., 2016. "Understanding Inflation as a Joint Monetary–Fiscal Phenomenon," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 2305-2415, Elsevier.
    5. Kirsten Wandschneider & Nikolaus Wolf, 2010. "Shooting on a moving target: explaining European bank rates during the interwar period," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 2(1/2), pages 31-48.
    6. Michael D. Bordo, 2017. "An Historical Perspective on the Quest for Financial Stability and the Monetary Policy Regime," Economics Working Papers 17108, Hoover Institution, Stanford University.
    7. Michael D. Bordo & Mickey D. Levy, 2021. "Do enlarged fiscal deficits cause inflation? The historical record," Economic Affairs, Wiley Blackwell, vol. 41(1), pages 59-83, February.
    8. Michael D. Bordo & Mickey D. Levy, 2020. "Do Enlarged Fiscal Deficits Cause Inflation: The Historical Record," NBER Working Papers 28195, National Bureau of Economic Research, Inc.
    9. Bryan C. McCannon, 2015. "Replacement Referees And Nfl Betting Markets," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 9(2), pages 14-26.
    10. Andrew Weinbach & Rodney J. Paul, 2009. "National television coverage and the behavioural bias of bettors: the American college football totals market," International Gambling Studies, Taylor & Francis Journals, vol. 9(1), pages 55-66, April.
    11. repec:hum:wpaper:sfb649dp2008-032 is not listed on IDEAS
    12. Barge-Gil, Andrés & García-Hiernaux, Alfredo, 2019. "Staking plans in sports betting under unknown true probabilities of the event," MPRA Paper 92196, University Library of Munich, Germany.
    13. Justin Wolfers & Eric Zitzewitz, 2006. "Interpreting prediction market prices as probabilities," Working Paper Series 2006-11, Federal Reserve Bank of San Francisco.
    14. Egon Franck & Erwin Verbeek & Stephan Nüesch, 2011. "Sentimental Preferences and the Organizational Regime of Betting Markets," Southern Economic Journal, John Wiley & Sons, vol. 78(2), pages 502-518, October.
    15. Rodney Paul & Andrew Weinbach, 2012. "Sportsbook pricing and the behavioral biases of bettors in the NHL," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(1), pages 123-135, January.
    16. Pierpaolo Angelini, 2024. "Financial Decisions Based on Zero-Sum Games: New Conceptual and Mathematical Outcomes," IJFS, MDPI, vol. 12(2), pages 1-28, June.
    17. Jeremy Sandford & Paul Shea, 2013. "Optimal Setting of Point Spreads," Economica, London School of Economics and Political Science, vol. 80(317), pages 149-170, January.
    18. David Card & Gordon B. Dahl, 2011. "Family Violence and Football: The Effect of Unexpected Emotional Cues on Violent Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 103-143.
    19. Legge, Stefan & Schmid, Lukas, 2016. "Media attention and betting markets," European Economic Review, Elsevier, vol. 87(C), pages 304-333.
    20. Kai Fischer & Justus Haucap, 2022. "Home advantage in professional soccer and betting market efficiency: The role of spectator crowds," Kyklos, Wiley Blackwell, vol. 75(2), pages 294-316, May.
    21. Klaassen, F.J.G.M. & Magnus, J.R., 2006. "Are Economic Agents Successful Optimizers? An Analysis Through Strategy in Tennis," Other publications TiSEM 73e12d86-8fe4-4a87-9181-7, Tilburg University, School of Economics and Management.

    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-

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mse:cesdoc:22018. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lucie Label (email available below). General contact details of provider: https://edirc.repec.org/data/cenp1fr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.