Impact of Interest Rates on Vanilla Option Prices
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1. Context
In this video from FRM Part 1 and CFA Level 1 curriculum, we take a look at how interest rates impact option prices i.e. premiums of European Calls and Puts. We use risk neutral pricing to reason out how increases in risk free interest rates increase the value of European calls and decrease the value of European put options. This video is an addendum to the preparation course for FRM Exam Part 1 (https://www.finRGB.com/courses/frm-part-1-online-course). The details of the reading in which this topic appears are given below:
| Area | Financial Markets and Products, Valuation and Risk Models |
| Reading | Properties of Options |
| Reference | Chapter 13. Properties of Options, Official GARP Books (FMP Section, 2021). |