Question

Consider one of the Greeks, "rho," in answering this question. (I can't insert the actual greek letter here in Sakai.) Now, note that at one point, Buffett's Berkshire Hathaway sold what is probably the world's largest short position in S&P 500 put options.

What would happen to this type of short position if interest rates rise dramatically? In other words, will Berkshire's possible liability to the counterparty go up or down? Remember the company is the put writer, not the buyer. Stated another way, if you "marked Berkshire Hathaway to market," would Berkshire's position (short) make money or lose money if rates rose...(holding everything else constant, i.e., ceteris paribus)? In other words, don't spend any time predicting the stock market, concentrate on the question, which only addresses interest rates an their effect on put values.

Answer 1