If the Volatility Implied from an At-The-Money Put Currency Option

question 3

Multiple Choice

If the volatility implied from an at-the-money put currency option were used to price other put options on the currency,which of the following would be true?

• A) Out-of-the money and in-the-money prices would be too high
• B) Out-of-the money and in-the-money prices would be too low
• C) Out-of-the-money option prices would be too high and in-the-money option prices would be too low
• D) Out-of-the-money option prices would be too low and in-the-money option prices would be too high

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