Option Pricing, Zero Lower Bound, and COVID-19
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 optio...
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MDPI AG
2021-09-01
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| Series: | Risks |
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| Online Access: | https://www.mdpi.com/2227-9091/9/9/167 |
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doaj-b59b402cf49e4ff8b9daced3c2a638352021-09-26T01:20:25ZengMDPI AGRisks2227-90912021-09-01916716710.3390/risks9090167Option Pricing, Zero Lower Bound, and COVID-19Giacomo Morelli0Lea Petrella1Department of Statistical Sciences, Sapienza University of Rome, 00185 Rome, ItalyMEMOTEF Department, Sapienza University of Rome, 00161 Rome, ItalyThis 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.https://www.mdpi.com/2227-9091/9/9/167option pricingZero Lower BoundCOVID-19 |
| collection |
DOAJ |
| language |
English |
| format |
Article |
| sources |
DOAJ |
| author |
Giacomo Morelli Lea Petrella |
| spellingShingle |
Giacomo Morelli Lea Petrella Option Pricing, Zero Lower Bound, and COVID-19 Risks option pricing Zero Lower Bound COVID-19 |
| author_facet |
Giacomo Morelli Lea Petrella |
| author_sort |
Giacomo Morelli |
| title |
Option Pricing, Zero Lower Bound, and COVID-19 |
| title_short |
Option Pricing, Zero Lower Bound, and COVID-19 |
| title_full |
Option Pricing, Zero Lower Bound, and COVID-19 |
| title_fullStr |
Option Pricing, Zero Lower Bound, and COVID-19 |
| title_full_unstemmed |
Option Pricing, Zero Lower Bound, and COVID-19 |
| title_sort |
option pricing, zero lower bound, and covid-19 |
| publisher |
MDPI AG |
| series |
Risks |
| issn |
2227-9091 |
| publishDate |
2021-09-01 |
| description |
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. |
| topic |
option pricing Zero Lower Bound COVID-19 |
| url |
https://www.mdpi.com/2227-9091/9/9/167 |
| work_keys_str_mv |
AT giacomomorelli optionpricingzerolowerboundandcovid19 AT leapetrella optionpricingzerolowerboundandcovid19 |
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1716869174012149760 |