I am trying to price interest rate options with the underlying as LIBOR. What rate do I use for the risk-free rate? Should the risk free rate be the LIBOR rate itself?

  • $\begingroup$ Can you please write out your payoff specifically? $\endgroup$ – Gordon Nov 12 '18 at 13:37
  • $\begingroup$ It looks like a option on Euribor Futures with strike 98.5 and spot 97.145 and the market price of the option is 0.01 $\endgroup$ – Bhaskar Gudimetla Nov 13 '18 at 10:05
  • $\begingroup$ To add, the time to expiry is 0.93 years $\endgroup$ – Bhaskar Gudimetla Nov 13 '18 at 10:06

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.