What is the risk-free interest rate used in the product?

The risk-free interest rate is the implied yield currently available on zero-coupon government issues of the country in whose currency the exercise price is expressed, with a remaining term equal to the expected term of the option being valued (based on the option’s remaining contractual life and taking into account the effects of expected early exercise).

It may be necessary to use an appropriate substitute if no such government issues exist.

In the absence granular Australian Government bond yield quoted by our data provider, our solution has applied the yield of a 3 year Australian Government bond as the risk-free rate for all tranches, regardless of term.

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