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

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.