Effect of interest rate on options

CFA Level I Derivatives
#1

Hello Everyone,

How increase in interest rate decrease the value of put by increasing opportunity cost of waiting ?

How selling an underlying is affected by change in interest rate as Exercise price is fixed ?

Thanks & Regards

#2

A higher interest rate will reduce the present value of a future cash flow.

#3

Hi Magician,

I agree with your point but we have right not to sell also so in real terms Put option holder is not facing any volitility because the factors like interest rate . This is the beauty of derivatives. So still not able to conclude above two statements.

Please help

Thanks

#4

What are the things that affect the value of a put? (hint: there is a formula!)

How does an interest rate change affect those values?

S2000 gave you the exact answer already. If that wasn’t enough you should probably try doing reading #60 again, as this concept is a pretty key component to understanding futures.

Good luck!

#5

This is simply untrue; puts have nonzero rho (the derivative of the put option’s price with respect to the risk-free rate).