How Does an Increase in the Risk-Free Rate Affect the Price of a Call Option According to Black-Scholes? ▴ Learn

How Does an Increase in the Risk-Free Rate Affect the Price of a Call Option According to Black-Scholes?

According to the Black-Scholes model, an increase in the risk-free interest rate will increase the theoretical price of a Call option. This is because a higher risk-free rate increases the present value of the strike price that the Call holder will have to pay in the future.

Conversely, a higher rate decreases the price of a Put option.

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