Define "Risk-Free Rate" in the Black-Scholes Model ⎊ Path

Define “Risk-Free Rate” in the Black-Scholes Model.

The Risk-Free Rate is the theoretical rate of return of an investment with zero risk, typically represented by the yield on short-term government securities (like US Treasury bills). In the Black-Scholes options pricing model, this rate is used as a variable to discount the expected future cash flows back to their present value, influencing the calculated theoretical option price.

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Glossar

Risk-Free Rate

Determinant ⎊ A risk-free rate, within cryptocurrency derivatives, represents the theoretical return on an investment with zero risk of financial loss over a given period, often proxied by yields on highly-rated sovereign debt denominated in a stable currency like the US Treasury yield.