
The Black–Scholes Options Pricing Model 401
e eect of the changes in the volatility of stock prices on the call price and put price is shown in
Fig. 16.7 and Fig. 16.8, respectively.
16.6.5 The Risk-free Rate
e impact of changes in the risk-free rate on the call price and put price is not as clear cut as the impact
of changes in the stock price, exercise price, time to expiration, or volatility. To understand the impact of
changes in the risk-free rate on call and put prices, we will consider how synthetic calls and puts can be
created.
A synthetic call position can be created by buying n
C
number of shares and borrowing n