Which of the following is true
A) All option implied volatilities tend to move by the same amount from one day to the next
B) The implied volatilities of long-dated options tend to move by more than the implied volatilities of short-dated options
C) The implied volatilities of short-dated options tend to move by more than the implied volatilities of long-dated options
D) Sometimes B is true and sometimes C is true

Question

Quizplus · Accepted Answer

When there is a shock causing an increase or decrease in volatility its impact tends to disappear over time.(This is the effect of mean reversion.)The result is that the increase or decrease volatility has most effect on the implied volatilities of short-dated options.

Which of the Following Is True