The risk-free rate The short-term risk-free rate traditionally used by derivatives practitioners is LIBOR o The Treasury rate is considered to be artificially low for a number of reasons (See Business Snapshot 4.1) o As will be explained in later chapters a Eurodollar futures and swaps are used to extend the LIBOR yield curve beyond one year s The overnight indexed swap rate is increasingly being used instead of libor as the risk-free rate Options, Futures, and other Derivatives 8th Edition Copyright O John C Hull 2012The Risk-Free Rate The short-term risk-free rate traditionally used by derivatives practitioners is LIBOR The Treasury rate is considered to be artificially low for a number of reasons (See Business Snapshot 4.1) As will be explained in later chapters: Eurodollar futures and swaps are used to extend the LIBOR yield curve beyond one year The overnight indexed swap rate is increasingly being used instead of LIBOR as the risk-free rate Options, Futures, and Other Derivatives 8th Edition, Copyright © John C. Hull 2012 6