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Put-call parity, the triple contract, and approaches to usury in medieval contracting

Published online by Cambridge University Press:  09 October 2015

Arthur J. Wilson  and
Geetae Kim
Arthur J. Wilson*
Affiliation:
George Washington University
Geetae Kim
Affiliation:
George Washington University
*
Arthur Wilson (corresponding author), email: ajw1@gwu.edu, Finance Department, George Washington University School of Business, 2201 G Street NW, Duquès Hall, Washington, DC, USA
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Abstract

In this article we use put-call parity to show that ambiguity about ownership played a role in medieval businessmen's efforts to circumvent the Catholic Church's usury restrictions. That ambiguity created fertile ground for a financial innovation, the triple contract, that allowed some merchants to accomplish a kind of regulatory arbitrage. We also show that medieval clerics and merchants appear to have had at least an intuitive grasp of put-call parity, and that this insight shaped the Catholic Church's approach to medieval business contracts, and usury, nearly five centuries before put-call parity was described in the scholarly literature.

Keywords

usuryput-call paritytriple contractregulatory arbitrage

JEL classification

B11: Preclassical (Ancient, Medieval, Mercantilist, Physiocratic) G23: Non-bank Financial Institutions • Financial Instruments • Institutional Investors N23: Europe: Pre-1913
Type
Articles
Information
Financial History Review , Volume 22 , Issue 2 , August 2015 , pp. 205 - 233
Copyright
Copyright © European Association for Banking and Financial History e.V. 2015 

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