Which of the Following Causes a Volatility Smile That Is

question 1

Multiple Choice

Which of the following causes a volatility smile that is a ``frown``?

• A) There is a small probability of a large stock price decrease in one week
• B) There is a small probability of a large stock price increase in one week
• C) The outcome of a lawsuit (roughly equal chance of being favorable or unfavorable) will create a large movement up or down in one week
• D) None of the above

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