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Understanding Financial Derivatives During The South Sea Bubble: The Case Of The South Sea Subscription Shares

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Executive Summary

In this paper, the authors demonstrate the existence of something whose existence has never been noted before. During the South Sea Bubble of 1720 there was not only a market for South Sea shares - a market that famously rose to dizzying heights before it came crashing down - there were also markets for financial derivatives related to South Sea shares. They do not refer here to the occasional option contract that was privately negotiated and drawn up between two individuals. They refer instead to financial derivative markets that attracted a trade amongst large numbers of people.

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