What Does the Shape of the Volatility Smile Reveal About

question 6

Multiple Choice

What does the shape of the volatility smile reveal about call options on a currency?

• 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:

Cyclical Unemployment

Unemployment that results from business cycle fluctuations in economic activity, particularly downturns, rather than from changes in the workforce or skill mismatches.

Long Run

A period where all factors of production and costs are variable and no inputs are fixed.

Unemployment

The condition of being jobless and actively seeking employment, reflecting the number of people in the workforce unable to find jobs.

Government Measure

Actions or initiatives taken by a government to regulate, control, or influence a particular aspect of the economy or society.