Number of messages in the thread: 1
1. Date: 2008-10-06 21:22:50
Subject: What is the role of interest in black scholes?
From: "0to60" <
h...@y...com>
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I've always wondered about this but never got a definitive answer.
Interest is an input to Black Scholes. How exactly is it being used? Is it
being used in a cost-of-carry context such as "if you buy options on margin,
you're gonna have to pay interest on them. That affects the value of the
option" or is it an opportunity cost context, such as "You trade options,
great. If you had just left your money in the bank, it would have earned
XXX percent".
Or maybe its used in some other context that I haven't thought of. Which is
it?
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