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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: Investors in the market
As we know from the LTCM case, after every major crisis, the option implied volatility exhibits a smirk pattern. This means: Investors in the market have higher demand to buy insurance against major market crashes going forward. It is the result of dynamic hedging. The pattern should have been a smile instead of a smirk. The smirk is predicted by the option model by Scholes and Merton
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Macroeconomics Principles And Policy
Authors: William J. Baumol, Alan S. Blinder
11th Edition
0324586213, 978-0324586213
