Interest Rates and the Price of American Put Options

Summary

The document poses a derivatives-pricing question: whether a rise in interest rates must always reduce the value of an American put option. The answer says that this conclusion does not hold in general and points readers to a referenced treatment for an explanation. It therefore cautions against treating the relationship between rates and American put values as an unconditional rule.

The post itself does not reproduce the cited reasoning, derive a pricing result, or give examples showing when the price may rise or fall. It also supplies no assumptions about dividends, volatility, maturity, or the option’s exercise boundary. Readers get the central qualification, but need the referenced material or a fuller model analysis to understand the conditions behind it and how the competing effects interact.

Key ideas

• A rise in interest rates does not necessarily lower an American put’s price in every case.
• The answer directs readers to an external treatment for the supporting explanation.
• The post gives no derivation, examples, or assumptions that identify when the price changes in either direction.

Tags

# American put option and rising interest rate


# American put option and rising interest rate












Will a rise in interest rate always result in a lower price of an American put option?

## Answer by phdstudent (score 1)

https://quant.stackexchange.com/a/18767

Generally no. Check page 21 of the following document:

http://www.frankfurt-school.de/clicnetclm/fileDownload.do?goid=000000053103AB4

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.