Explain the Pattern of Implied Volatility That Is Often Referred

question 16

Essay

Explain the pattern of implied volatility that is often referred to as a smirk.(Use a call as your example.)

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Definitions:

Equity Method

An accounting technique used by companies to assess the profits earned through their investments in other companies.

Fair Value

The remuneration for divesting an asset or the compensation needed to transfer a liability in an orderly market exchange at the calendar mark for assessment.

Temporary Decline

A short-term decrease in the value or performance of an asset or market, expected to recover over time.

Voting Common Stock

Shares that give the holder the right to vote on corporate matters.