How to price December 2020 maturity European call option of S&P 500 (Strike of 3000). What should be the risk free rate ?

  • $\begingroup$ How does the option being longer-dated play a special role in your question? $\endgroup$ May 2, 2018 at 18:52
  • $\begingroup$ This has been discussed before here (quant.stackexchange.com/questions/33776/…) and here (quant.stackexchange.com/questions/32239/…). Particularly, the former discusses how "risk-free" pertains to funding costs. In short, while there is no such thing as a risk-free rate of return, the writer's cost of collateral is probably the closest thing. What would your broker charge for collateral over the life of the option? $\endgroup$ May 2, 2018 at 19:34
  • $\begingroup$ Thanks David for your answer. I got your point and will use collateral rate for 32 month maturity. If suppose I prefer to use OIS spread or US T bill what rate should I consider it to be for 32 Month maturity. Also, I have priced this option as per BS calculation it turned out to be 72.50/- what is your view on this calculation. $\endgroup$
    – Add
    May 2, 2018 at 19:47


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