What Is the Concept of the ‘Early Exercise Boundary’ in American Option Pricing?

The early exercise boundary is the critical price level of the underlying asset at which it becomes optimal to exercise the American option immediately rather than hold it. For an American call, this boundary is a high price, and for a put, it is a low price.

The boundary changes over time and is a function of the strike price, time to expiration, volatility, and interest rates.