What Is the Impact of a High Interest Rate on the Time Value of a Call Option? ▴ Learn

What Is the Impact of a High Interest Rate on the Time Value of a Call Option?

A high risk-free interest rate (Rho) generally increases the time value (extrinsic value) of a call option. This is because holding a call option is similar to borrowing money to buy the underlying asset later.

A higher interest rate increases the present value of the future strike price, making the right to buy at that price more valuable today, thus increasing the call option's premium.

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

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

What Is the Relationship between Interest Rates and the Price of a Call Option?

How Do Interest Rates Affect the Value of a Call Option (Rho)?