Econometric Modeling: Derivatives eJournal | 2021
Early Exercise of American Call Options under Negative Interest Rates
Abstract
Although negative interest rates have been a phenomenon observed in capital markets for years, little research has been done on the impact of negative interest rates on stock option valuations. This paper shows that the fundamental assumption of equivalence between American and European call options at negative riskless interest rates is no longer universal. The findings are illustrated by means of an example. Furthermore, there are implications for practical trading with options.