Work

Floating exercise boundaries for American options in time-inhomogeneous models

Year: 2025

Type: preprint

Abstract: This paper examines a semi-analytical approach for pricing American options in time-inhomogeneous models characterized by negative interest rates (for equity/FX) or negative convenience yields (for commodities/cryptocurrencies). Under such conditions, exercise boundaries may exhibit a "floating" structure - dynamically appearing and disappearing. For example, a second exercise boundary could emerge within the computational domain and subsequently both could collapse, demanding specialized pricing methodologies.

Source: RePEc: Research Papers in Economics

DOI: 10.48550/arxiv.2502.00740

Authors: Itkin, Andrey, Kitapbayev, Yerkin

Institutions: New York University, Khalifa University of Science and Technology

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W4407124055

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