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.
Glossar
Time Value
Duration ⎊ The temporal dimension inherent in cryptocurrency derivatives, options trading, and financial instruments fundamentally defines time value.
Interest Rate
Yield ⎊ Interest rate, within cryptocurrency derivatives, represents the cost of capital or the return on an underlying asset utilized in constructing a derivative position, impacting pricing models and arbitrage opportunities.