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more ▼WIKI ANALYSIS
WIKI ANALYSIS| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
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Rho is one of the five Greeks used to measure different aspects of risk inherent in an option position. Rho is a measure of an options sensitivity to a change in the risk-free interest rate (often defined by the yield of U.S. Treasuries). Rho defines the rate at which the price of an option changes relative to a 1% increase in the risk-free interest rate.
In practice rho is not as useful as its greek cousins, delta, theta, and vega. This stems from the fact that interest rates change very slowly and may not change at all over the life a particular option contract.
Example
If the rho of an option position is 9.8, a 1% increase in the risk-free interest rate will lead to a $9.80 increase in the value of the option.
See Also
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