Option Pricing Methods in the City of London during the Late 19th Century

This paper examines through the lens of modern option pricing a largely forgotten option trading manual called “The PUT-and-CALL” written in 1896 by a London trader named Leonard R. Higgins. It argues that City of London traders in the late nineteenth century had a considerably more advanced understanding of option pricing than previously thought. They used routinely the put-call parity for option conversion and static replication of option positions, developed sophisticated techniques for determining the prices of short-term calls and puts and viewed options mainly as instrument to trade volatility. Higgins's book is used as a historical example to discuss the relationship between academic research and market practices