Floating exercise boundaries for American options in time-inhomogeneous models
arXiv:2502.00740
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.
18 pages, 8 figures, 4 tables