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(a) As option trader of leading investment bank, you constantly monitor the relationship between implied volatility and strike prices for option on the stock of

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(a) As option trader of leading investment bank, you constantly monitor the relationship between implied volatility and strike prices for option on the stock of Gold mining company. Just before the end of trading day you are observing the shape known as inverse volatility smile. How do you interpret the graph? What can you say about the general relationship between moneyness of options available on the stock of particular Gold mining company and the level of implied volatility? (2 marks)

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