Option Value and Interest Rate
This query is : Resolved
Avinasheswar
(Querist)
20 April 2008
Please explain how interest rate effects the value of option?
How does option value increase with rising interest rate?
How does option value increase with rising interest rate?
23 September 2009
Value of an opiton is nothing but an interest you would pay for the contract amount. hence if the interest rate raises then the value of the option will also raise.
To put in numbers, say you want to buy nifty 5000 option when the nifty is trading at 5000. Assume i have an option to rasie bank loan at 5%. If I buy the contract for 5000 and pay interest Rs.25 for that i would price the option which is more than Rs.25.
Practically, interest rate is not a only factor that determines the option price, there are other factors like volatality and liquidity.
To put in numbers, say you want to buy nifty 5000 option when the nifty is trading at 5000. Assume i have an option to rasie bank loan at 5%. If I buy the contract for 5000 and pay interest Rs.25 for that i would price the option which is more than Rs.25.
Practically, interest rate is not a only factor that determines the option price, there are other factors like volatality and liquidity.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Tax on Amount transferred in HUF Account
- Nursery business
- Condonation Request sec 119(2) b -Enhancement Limit of Leave Exemption prior to AY 2023
- GST REFUND ISSUE ON PURCHASE OF PLANT AND MACHINERY
- Working on Gold wastage during Melting of old gold jewellery
- TDS on Dashcam rent and allied services
- Intimation under section 245
- GST input credit on commercial property
- Gift to nri relatives residing in usa
- ETDS return q4 25-26
- GSTR-9C filing
- Royalty payments to the Mining Department for procurement of murum - GST input
- HOW TO ADJUST CREDIT NOTE AMOUNT ?
- Import Order Cancelled.
- WRONG GSTR7 ENTRIES ACCEPTED ERRONEOUSLY
- Expert Help Required for TDS Refund 100000 Through TRACES – AY 2022–23
- IMPORT PURCHASE ENTRY PASSED IN BOOKS OF ACCOUNT
- FAST DS 26 Undisclosed Foreign Asset Disclosure Scheme 2026
- Regime change
- Tally: Imported bank entries do not show up in manual reconciliation
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
Subscribe to Pro
Join an elite circle of professionals
CAclubindia
