Has anyone come across and fixed calculation issues on boundaries using Bjerksund-Stensland 2002 (Hull, Haug or Rouah implementations) ? Thanks in advance
$\begingroup$
$\endgroup$
Add a comment
|
1 Answer
$\begingroup$
$\endgroup$
1
Is your question about the early exercise boundary (B0 and B_inf)? The B0 boundary can be questionable when cost of carry is the same as risk free rate (r=b for options on non dividend-paying equity underlier). If cost of carry equals risk free rate, I will have to assume a small value for r-b to get the boundary B0.
-
$\begingroup$ Thank you for your comment. Put more simply, and considering current market variables (b>r), a SPY Put Credit Spread will be modelled incorrectly most likely due to B0. $\endgroup$– brunoJul 17, 2020 at 5:18