How Does the Market Maker Adjust the 'Risk-Free Rate' in Crypto Option Pricing? ▴ Learn

How Does the Market Maker Adjust the ‘Risk-Free Rate’ in Crypto Option Pricing?

Since a true risk-free rate is difficult to define in the crypto space, market makers typically use a proxy. This proxy is often the interest rate for borrowing or lending the stablecoin (e.g.

USDC, USDT) used as collateral or settlement currency, or the yield on a highly liquid, short-term fiat instrument, adjusted for any perceived credit risk.

What Is the Risk Profile of an Algorithmic Stablecoin versus a Fiat-Backed Stablecoin?

Why Is the Choice of the ‘Risk-Free Rate’ a Challenge When Calculating IV for Crypto Options?

What Is the Difference between a ‘Fiat-Backed’ and a ‘Crypto-Backed’ Stablecoin?

Which ‘Greek’ Is Directly Influenced by the Risk-Free Interest Rate Assumption in Black-Scholes?