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.

Keywords: Negative Interest Rates, Early Exercise, Call Options, Options, Option Valuation

JEL Classification: G10, G13,