Due to a lack of information, a trader is not able to retrieve the yield of government bonds as the risk-free rate to use in the pricing of a call option. Instead, the yield of the highest-rated investment-grade corporate bond is considered a close substitute.  Explain how this substitution of the risk-free rate would impact the call option price.

Answer rating: 100% (QA)

Substituting the yield of the highestrated investmentgrade corporate bond for the riskfree rate in t... View the full answer