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Which of the statements is true about volatility smiles? The fatter the tails of the actual distribution relative to the (log) normal distribution, the greater

Which of the statements is true about volatility smiles?

  1. The fatter the tails of the actual distribution relative to the (log) normal distribution, the greater would be the implied volatility of deep out-of-the-money options compared to the implied volatility of at-the-money options.
  2. The volatility smile of equity options is symmetric but that of currency options is asymmetric (skew).

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