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pompeida9
Topic Author
Posts: 2
Joined: February 4th, 2019, 9:07 pm

Rates Curve Construction from Eq Options

October 8th, 2021, 12:49 pm

hi, I try to back out the implied rates curve out of US options. by doing this I see premium over Libor rates in the US. I am using non-div underlyings and repo market is not explaining the difference. 
What do I miss out? Thanks
 
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animeshsaxena
Posts: 523
Joined: June 19th, 2008, 2:56 pm

Re: Rates Curve Construction from Eq Options

October 9th, 2021, 4:39 pm

let's assume you take 3month option on a Apple

You are deconstructing Rate in the call option formula from all other variables including option price. Since repo market is not explaining the difference I would assume that your are getting a premium over libor 3m rate. Assuming this premium is not justified by libor bid/offer spread.

First thing to check will be the forward price using call put parity. Can you back out the rate from call put parity instead? Ideally the risk free rate you get from the model should be lower than libor (Libor has credit risk embedded)