Which of the following is true? choose one)
A) The volatility skew for equities is much more pronounced now than it was in 1987.
B) The volatility skew for equities was much more pronounced in 1987 than it is now.
C) The volatility skew for equities is consistent with the Black-Scholes model.
D) The volatility skew for equities is similar to that for foreign currencies.

Question

Quizplus · Accepted Answer

The volatility skew for equities has become more pronounced over time, especially after the 1987 market crash, which led to a greater awareness and modeling of skew in the pricing of options. The Black-Scholes model, by contrast, assumes a log-normal distribution of stock prices and does not account for skew, making choice C incorrect. The volatility skew for equities and foreign currencies can differ due to the unique market factors affecting each asset class, making choice D incorrect. Choice B is the opposite of the correct trend observed in the market.

Which of the Following Is True? Choose One)