EFTA Document EFTA01365342

3 December 2013 US Derivatives Spotlight Rho- interest rate sensitivity Interest rate levels drive the pricing of call options in two ways. • The discounting or present value effect: the present value of the expected payoff from the call at maturity is lower. • The forward effect: The cost of carry is lower and hence the expected spot is higher at maturity. This increases the value of the call. The net effect of these two can be seen by the greek 'rho', which measures the sensitivity