Floating exercise boundaries for American options in time-inhomogeneous models
A pricing model is extended to account for negative interest rates or convenience yields
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Andrey Itkin and Yerkin Kitapbayev examine a semi-analytical approach for pricing American options in time-inhomogeneous models characterised by negative interest rates (for equities/foreign exchange) or negative convenience yields (for commodities/cryptocurrencies). Under such conditions, exercise boundaries may exhibit a ‘floating’ structure, dynamically appearing
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