Risk-free interest rate mainly refers to the proportion of capital gains obtained through risk-free financial management. The traditional risk interest rate investment methods include national debt and bank funds, which are mainly calculated according to the prescribed benchmark. Therefore, the interest rate stipulated by the national benchmark is constant and changes with the change of the benchmark. Risk-free interest rate refers to the interest rate standard obtained by risk-free investment. The characteristics of risk-free investment fully guarantee the safety of investment principal. Common risk-free investment methods are mainly national debt and funds.
Risk-free interest rate is one of the factors that affect the option price. The risk-free interest rate will also affect the intrinsic value and time value of options. When the interest rate rises, the time value curve of options will shift to the right; On the contrary, when the interest rate falls, the time-value curve of options will move to the left. However, the overall impact of interest rate level on the time value of options is very limited. The focus is on the impact on the intrinsic value of options, which has a negative impact on put options and a positive impact on call options. If the above factors remain unchanged, the risk-free interest rate will rise, the expected growth rate of the underlying asset price may also rise, and the present value of the cash flow that option buyers may get in the future will decrease, both of which will lead to the decline of the put option value.
1. The higher the risk-free interest rate, the lower the value of the put option. For call options, the increase of the underlying asset price growth rate will lead to the increase of the value of call options, while the decrease of the present value of cash flow that may be received in the future will lead to the decrease of the option value of put options. Theoretically, the former has a greater impact on the value of call options than the latter. Therefore, the higher the risk-free interest rate, the higher the value of the call option.
2. The Greek letter Rho can be used to indicate the influence of risk-free interest rate on option price. For call options, if the interest rate rises, the option price rises; On the contrary, if the interest rate falls, the option price falls, which can be seen from the positive Rho value of the call option. On the contrary, for put options, if the interest rate rises, the option price falls; If the interest rate falls, the option price will rise, because the Rho value of the put option is negative.