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As we know from the LTCM case, after every major crisis, the option implied volatility exhibits a smirk pattern. This means: It is the result
As we know from the LTCM case, after every major crisis, the option implied volatility exhibits a smirk pattern. This means:
It is the result of dynamic hedging. | ||
Investors in the market have higher demand to buy insurance against major crises going forward. | ||
The smirk is predicted by the option model by Scholes and Merton. | ||
The pattern should have been a smile instead of a smirk. |
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