The Implied Volatility Skew Observed in Stock Indices Cannot Be

question 8

Multiple Choice

The implied volatility skew observed in stock indices cannot be attributed to which of the following reasons?

• A)The distribution of index returns is non-normal.
• B)The skewness of index returns is much greater than zero.
• C)The excess kurtosis of index returns is much greater than zero.
• D)There is crash risk in the index.

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Definitions:

Inferior Good

A type of good for which demand decreases as the income of consumers increases, inversely related to income changes.

Law Of Demand

An economic principle stating that, all else being equal, an increase in the price of a good or service will lead to a decrease in the quantity demanded, and vice versa.

Quantity Demanded

The total amount of a product that consumers are willing and able to purchase at a certain price level within a specified time period.

Streaming Movies

The process of watching films over the internet without the need for downloading, typically through subscription-based platforms.