Which of the following is true? choose one)
A) The volatility smile for European puts is the same as that for European calls.
B) The volatility smile for European puts is the same as that for American puts.
C) The volatility smile for European calls is the same as that for American calls.
D) The volatility smile for American puts is the same as that for American calls.

Question

Quizplus · Accepted Answer

The volatility smile for European puts is the same as that for European calls due to the put-call parity, which holds for European options. This relationship does not necessarily hold for American options due to their early exercise feature.

Which of the Following Is True? Choose One)