Varying the Risk Free Rate

We illustrate the effect of changing the risk-free rate on option values in Figure 24.4. As shown, increasing the risk-free rate has a positive impact on call values and a negative impact on put values. Notice, however, that for realistic changes in interest rates, option values don't change a lot. In other words, option values are not as sensitive to changes vega

Measures the sensitivity of an option's value to a change in the standard deviation of the return on the underlying asset.

Slide 24.25 Figure 24.3

Option Prices and Sigma

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