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What Is the Relationship between Interest Rates and Option Pricing?

Higher interest rates generally increase Call premium and decrease Put premium due to time value of money effects.
Greeks.Live17.11.25

What Is the Relationship between Interest Rates and Option Pricing?

Interest rates are one of the inputs in the Black-Scholes option pricing model. Higher interest rates generally increase the premium of a Call Option and decrease the premium of a Put Option.

This is because higher rates reduce the present value of the strike price (making a Call more valuable) and increase the cost of carrying the underlying asset (making a Put less valuable).

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