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Rho

The sensitivity of an option's premium to a change in the interest rate.

Formula

ρ=∂C∂r

r is the risk-free rate. The effect is largest in long-dated series: the further away expiry is, the longer the money stays tied up.

How to read the number

The rate sets the cost of money locked up until expiry, so it enters the option price alongside volatility.

When the metric lies

Also known as: option rho

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