Debrah Meloso, TBS Business School
Speaker: Debrah Meloso, Associate Professor at TBS Business School
Date: Wednesday 4 October
Time: 12.15–13.15
Location: UiS Business School, Elise Ottesen-Jensens house, room EOJ 276/277
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https://stavanger.zoom.us/j/69448783049?pwd=Szk3c2didVpGamhpbHllQWNJVU1CQT09
Meeting ID: 694 4878 3049
Password: 034455
Title: Buyback option pricing in rural old regime France
Authors: Debrah Meloso, David Le Bris, Olivier Gergaud og Ronan Tallec
Abstract
To sell a property with a right to buy it back was a frequent practice in Old Regime France. Such a combined contract offered money plus a call option to the seller and, to the buyer, an asset at a reduced price due to the sale of the call. We model the value of such an original call option whose strike price is equal to the combined contract price. Any overestimation of the underlying property leads to an inconsistent negative call value. Using transactions observed in a French town between 1661 and 1788, we show that on average the call option was correctly priced, but an important fraction of individual transactions happened at an inconsistent price (negative price of the call). Despite its fundamental complexity, this market was active among the studied rural population, probably because such a combination of a sale with a buyback option was highly attractive for asset management.