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 firm’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 shares’ 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 0512.
Date of creation: Dec 2005
Date of revision:
Contact details of provider:
Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
Fax: 01334 462444
Web page: http://www.st-andrews.ac.uk/cdma
More information through EDIRC
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.:
- Geske, Robert, 1979. "The valuation of compound options," Journal of Financial Economics, Elsevier, vol. 7(1), pages 63-81, March.
- Ernst Juerg Weber, 2008. "A Short History of Derivative Security Markets," Economics Discussion / Working Papers 08-10, The University of Western Australia, Department of Economics.
- Campbell, Gareth, 2010. "Leveraging the British Railway Mania: Derivatives for the Individual Investor," MPRA Paper 21822, University Library of Munich, Germany.
- Gary S. Shea, 2007. " Arbitrage and Simple Financial Market Efficiency during the South Sea Bubble: A Comparative Study of the Royal African and South Sea Companies Subscription Share Issues," CDMA Working Paper Series 0716, Centre for Dynamic Macroeconomic Analysis.
- Gary S. Shea, 2011. " (Re)financing the Slave Trade with the Royal African Company in the Boom Markets of 1720," CDMA Working Paper Series 1114, Centre for Dynamic Macroeconomic Analysis.
- Campbell, Gareth & Turner, John, 2010. "‘The Greatest Bubble in History’: Stock Prices during the British Railway Mania," MPRA Paper 21820, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bram Boskamp).
If references are entirely missing, you can add them using this form.