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Interest rates and options

Former userFormer user5y ago

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John MoffatJohn MoffatTutor5y ago#1
Although it seems that you book explains it in a complicated way, what they getting at is the the last term in the Black Scholes formula is effectively discounting Pe on a continuous basis, as I explain in my lectures. If the interest rate increases then the PV of that last term in the equation will be lower, which will (ignoring all other factors) result in a higher option price.
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