This paper provides a quantitative assessment of equity options priced at the Zero Lower Bound, i.e., when interest rates are set essentially to zero. We obtain closed form formulas for American options when the Zero Lower Bound policy holds. We perform numerical implementation of American put options written on the stock Federal National Mortgage Association (FNMA) and of related bounds for the optimal exercise. The results show similarities with the corresponding European options priced at the Zero Lower Bound during the COVID-19 crisis.

Option Pricing, Zero Lower Bound, and COVID-19 / Morelli, G.; Petrella, L.. - In: RISKS. - ISSN 2227-9091. - 9:(2021). [10.3390/risks9090167]

Option Pricing, Zero Lower Bound, and COVID-19

Morelli G.;Petrella L.
2021

Abstract

This paper provides a quantitative assessment of equity options priced at the Zero Lower Bound, i.e., when interest rates are set essentially to zero. We obtain closed form formulas for American options when the Zero Lower Bound policy holds. We perform numerical implementation of American put options written on the stock Federal National Mortgage Association (FNMA) and of related bounds for the optimal exercise. The results show similarities with the corresponding European options priced at the Zero Lower Bound during the COVID-19 crisis.
File allegati a questo prodotto
File Dimensione Formato  
Morelli_Option-Pricing_2021.pdf

accesso aperto

Tipologia: Versione editoriale (versione pubblicata con il layout dell'editore)
Licenza: Creative commons
Dimensione 1.16 MB
Formato Adobe PDF
1.16 MB Adobe PDF Visualizza/Apri PDF

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11573/1626524
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 3
  • ???jsp.display-item.citation.isi??? 2
social impact