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How Does the Borrowing Cost for the Underlying Asset Affect the Pricing of a Call Option?

Higher borrowing cost increases the Call option's theoretical price as it raises the cost of carry for the synthetic long position.
Greeks.Live14.11.25

How Does the Borrowing Cost for the Underlying Asset Affect the Pricing of a Call Option?

The borrowing cost for the underlying asset is equivalent to the 'cost of carry' and is incorporated into the theoretical price of the Call option via the interest rate or 'risk-free rate' input in the Black-Scholes model. Higher borrowing costs (higher cost of carry) increase the theoretical price of a Call option and decrease the price of a Put option via Put-Call Parity.

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