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

Question

Quizplus · Accepted Answer

As shown at the end of the chapter the situation in C leads to a "frown"

Which of the Following Causes a Volatility Smile That Is