Hi, As an input for option pricing models (e.g. GBSOption from fOption), how's the risk-free rate of return usually calculated? Shall we just find any T-bill whose maturity date matches the option expiration date and use its value to calculate the compound yield? Are there any existing functions for doing this? Thanks! Xian Li
risk-free rate in option pricing
2 messages · Xian Li, Arun Kumar Saha
4 days later
Dear Xian, as per the Hull's book you should consider a T-Bill with same maturity as the underlying option contract (as you also said correctly.) However just make sure that, that rate is expressed in continuous compounding. I can also remember that this topic was previously discussed in details here (just make a search.) HTH, Thanks and regards, _____________________________________________________ Arun Kumar Saha, FRM QUANTITATIVE RISK AND HEDGE CONSULTING SPECIALIST Visit me at: http://in.linkedin.com/in/ArunFRM _____________________________________________________ -- View this message in context: http://r.789695.n4.nabble.com/risk-free-rate-in-option-pricing-tp4076900p4090984.html Sent from the Rmetrics mailing list archive at Nabble.com.