American Option Below European Option when the risk-free-rate is zero (or negative)

[kiann00]

• Longstaff-Schwartz Algorithm version:
• Python version:
• Operating System:

Description

I am trying to calibrate to a volatility (ATM) curve for your Longstaff python code. Before setting it up, I was testing a variety of the base parameters, and I kept noticing this : when risk-free-rate <= 0.0, the American (call) option is always lower in price than European.

That does not make sense to me (or am I missing some fundamental theory here)?

@luphord