How Does a Change in Interest Rates Theoretically Affect the Price of a Call Option?

An increase in the risk-free interest rate theoretically increases the price of a call option and decreases the price of a put option. This is because higher interest rates reduce the present value of the strike price, which the call option buyer must pay in the future.

Furthermore, higher rates increase the cost of carry for holding the underlying asset, which also contributes to a higher call price according to models like Black-Scholes.