How does the price of options depend on interest rates?

How do interest rates affect the price of both put and call option, and, more importantly, why?

By | 2013-08-28T07:21:13+00:00 August 28th, 2013|Mortgages Home Loans Interest Rate|1 Comment

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  1. InspectorBudget August 28, 2013 at 7:26 AM - Reply

    Interest rates do not directly affect the prices of options. Options such as puts are calls are most affected by the Time delay and the price movement. You can learn more about this by studying the Black-Scholes model and what is called ” The Greeks “.

    Interest rates would affect options in the sense that they influence the price of an underlying stock from which the options are derived. A rise in interest rates would tend to depress the stock, and a lowering of rates tends to lift the stock – with the corresponding effect on the derivatives.

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