Rho

The change in an option's value for a change in the interest rate. It is generally the smallest of the Greeks for short-dated options.

Where you will meet it

Rho comes up in 4 learning outcome notes across the FRM syllabus. A few of them:

• Measuring Returns, Volatility, and Correlation
  FRM Part I · Quantitative analysis

  “Spearman's rho is the Pearson correlation of the ranks.”

• Option Sensitivity Measures: The “Greeks”
  FRM Part I · Valuation and risk models

  “Theta is time decay, normally negative for long options, and rho is sensitivity to the interest rate, positive for calls and negative for puts.”

• Portfolio Credit Risk
  FRM Part II · Credit risk measurement and management

  “Rho = βi × βj.”

• Portfolio Credit Risk
  FRM Part II · Credit risk measurement and management

  “Rho = βi × βj.”

See also

Greeks · Option

All terms beginning with R · FRM glossary

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