Download This PaperEarly Exercise of American Call Options under Negative Interest Rates
17 Pages Posted: 30 Jun 2021
Date Written: May 27, 2021
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.
Keywords: Negative Interest Rates, Early Exercise, Call Options, Options, Option Valuation
JEL Classification: G10, G13,
Suggested Citation: Suggested Citation
Schneider, Jochen and Helms, Nils, Early Exercise of American Call Options under Negative Interest Rates (May 27, 2021). Available at SSRN: https://ssrn.com/abstract=3854489 or http://dx.doi.org/10.2139/ssrn.3854489
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