If the volatility implied from an at-the-money put currency option were used to price other put options on the currency,which of the following would be true?
A) Out-of-the money and in-the-money prices would be too high
B) Out-of-the money and in-the-money prices would be too low
C) Out-of-the-money option prices would be too high and in-the-money option prices would be too low
D) Out-of-the-money option prices would be too low and in-the-money option prices would be too high

Question

Quizplus · Accepted Answer

The Answer is B

If the Volatility Implied from an At-The-Money Put Currency Option