Debt Management Gov
How do you determine the risk-free interest rate for the Black-Scholes option calculator?
I heard you use U.S treasury bills but I went to their site and I get quotes from 4, 13, 26, and 52 weeks, and then I get quotes like .18, .22, .40, .56 respectively whereas it appears that example risk-free rates are quoted at 4.7% ish. This confuses me as 18% is no where near 4.7%.
I’ve read the text book answers, but I need sites and places to go to get this as well as conversion factors(?) so my info seems more like the rates commonly quoted.
FYI: this is the site I went to… straight from the horses mouth:
http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/daily_treas_bill_rates.shtml
Thanks.
<<
I usually use the calculator at
http://www.ivolatility.com/
which fills in the interest rate for me. I don’t know if the rate is the most accurate available, but I know it is close enough for my purposes.
<<>>
As the first answer indicated, “.18″ means 0.18% not 18%. Due to the current financial crisis the current interest on government debt is at historic lows. If you go to the page you referenced and click on “historical data” and look at 2006
http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/daily_treas_bill_rates_historical_2006.shtml
you will see rates close to what you see in the text.
<<
The source you are using is fine. If you got current data close to what you see in the text book it would be wrong.
——-
Don’t be discouraged by people telling you that you are asking a dumb question. The only dumb question is one you don’t ask. The best way to learn about options is to read good books about them and ask question is there is something that you are not sure you understand correctly. You are doing exactly what you should be doing.