7.5 Rho

Rho measures the sensitivity of an option's price to changes in the risk-free interest rate. It indicates how much the price of an option will change for a 1% change in interest rates. For example, if a call option has a rho of 0.05, a 1% increase in the risk-free interest rate will result in an approximate $0.05 increase in the call option's price. Conversely, if a put option has a rho of -0.05, a 1% increase in the risk-free interest rate will result in an approximate Rs. 0.05 decrease in the put option's price. Rho is more significant for longer-term options and becomes less relevant for shorter-term options.