Financial Regulation Lab (LabEx ReFi), the New York University (NYU), the Leibniz Institute for Financial Research SAFE (SAFE) and the Center for Advanced Studies on the Foundations of Law and Finance (LawFin) organize and cordially invite you to the the first web seminar from the Law & Banking/Finance Web Seminar Series
Speaker: Pierre-Charles Pradier (University Paris 1)
Title: A la Recherche du Temps Perdu: Legal and Quantitative Analysis of the First Documented Option Market Paris 1795-1985
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. We generalize the Bachelier option pricing model and 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 options to attract gamblers, (2) an administered settlement price, (3) a sophisticated risk management involving position-taking and book-balancing in order to achieve (4) parimutuel-like betting performance and sustainability for the operator. In light of these legal and quantitative analysis, we give a rationale for the rise and decline of the Paris option trading.