Understanding financial derivatives during the South Sea Bubble: the case of the South Sea subscription shares | Zendy

Gary S. Shea | Zendy

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Understanding financial derivatives during the South Sea Bubble: the case of the South Sea subscription shares

Author(s) -

Gary S. Shea

Publication year - 2007

Publication title -

oxford economic papers

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.68

H-Index - 69

eISSN - 1464-3812

pISSN - 0030-7653

DOI - 10.1093/oep/gpm031

Subject(s) - arbitrage , market share , share price , economic bubble , economics , fair share , business , monetary economics , financial economics , finance , public economics , stock exchange

South 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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