What Does the Shape of the Volatility Smile Reveal About

question 20

Multiple Choice

What does the shape of the volatility smile reveal about put options on equity?

• A) Options close-to-the-money have the lowest implied volatility
• B) Options deep-in-the-money have a relatively high implied volatility
• C) Options deep-out-of-the-money have a relatively high implied volatility
• D) All of the above

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Definitions:

Defense Mechanisms

Strategies employed by the mind to cope with uncomfortable emotions or thoughts, often unconsciously, leading to behaviors that might mitigate psychological stress.

Unacceptable Impulses

Thoughts or desires that are considered inappropriate or unacceptable by societal standards, often suppressed or repressed.

Displacement

In psychology, displacement refers to the unconscious transfer of an intense emotion from its original object to another, more acceptable one.

Defense Mechanism

Psychological strategies employed unconsciously to protect a person from anxiety-arising thoughts or feelings.