Understanding financial derivatives during the South Sea Bubble: the case of the South Sea subscription shares
AbstractSouth Sea Company subscription shares were compound call options on the firmâ€™s own original shares. From the description of shares found in 6 Geo. 1, c.4, a theory of their pricing is developed. A method for computing subscription share values is also developed. Calculated theoretical values for subscription shares are compared to the sharesâ€™ historical values and a close correspondence between the two is demonstrated. The pricing of the subscriptions appears to have been quite rational and explainable using simple financial economic theory.
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Bibliographic InfoPaper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200512.
Date of creation: 15 Dec 2005
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South Sea Company; financial revolution; bubble act; compound options; partly-paid shares.;
Find related papers by JEL classification:
- N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-20 (All new papers)
- NEP-FIN-2005-12-20 (Finance)
- NEP-FMK-2005-12-20 (Financial Markets)
- NEP-HIS-2005-12-20 (Business, Economic & Financial History)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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