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The Ancient Roots of Modern Financial Innovation: The Early History of Regulatory Arbitrage Michael Knoll Download the Paper (PDF format) - June 8, 2004 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing. ABSTRACT: Recent years have seen an explosion of financial innovation. Much of this innovation seeks to exploit inconsistencies in the regulatory environment, and one of the most popular techniques for doing so uses put-call parity. Nonetheless, regulatory arbitrage using put-call parity is not a new phenomenon, as is frequently suggested. This Essay traces the use of put-call parity to avoid the usury prohibition back to Ancient Israel. It also describes the important role that put-call parity played in developing the equity of redemption, the defining characteristic of a modern mortgage, in Medieval England. In addition, this Essay describes how Muslims living in the West are using mortgage substitutes based on put-call parity to avoid Islam's prohibition on paying interest. SUGGESTED CITATION: Michael Knoll, "The Ancient Roots of Modern Financial Innovation: The Early History of Regulatory Arbitrage" (June 8, 2004). University of Pennsylvania Law School. Scholarship at Penn Law. Paper 49. http://lsr.nellco.org/upenn/wps/papers/49 | REPOSITORY HOME  | SEARCH  | MY ACCOUNT  | NELLCO HOME | Powered by bepress.