How would you handle a negative interest rate in index/equity options valuation?
An example would be negative rates for short term maturities for Swiss Frank (CHF).
A realistic alternative is to set all CHF rates out till 3 months equal to zero. The differential is so insignificant that for practical pricing valuation purposes it makes zero difference.
Please note that I am in particular talking about the valuation of index/equity options such as you indicated.
But even plugging negative rates in should work fine for BS-models (read a paper on that by Espen Gaarder Haug). However, you need to be more careful when working with interest rate models. Some are not happy with negative rates.