Risk-Free Rate in the Covid-19 Pandemic: Application Mistakes and Conclusions for Traders

Abstract

This short paper is intended to demonstrate a crucial omission made by traders in setting the risk-free interest rate, especially in times of crisis: instead of increasing the risk-free rate, traders undercut it en masse on the contrary. This results in incorrect investment and financial decisions, especially those involving CAPM models, option pricing models and portfolio theory.

arXiv comment11 pages, 1 figure, 1 Graph, 1 Tabl