Question 1

Q-Code: 21-L3-06-OPST-76186

Which of the following is most likely correct?

A
Volatility skew is a situation, where the implied volatility increases for OTM puts and decreases for OTM calls.
B
Volatility smile is a situation where the implied volatility increases for OTM calls but decreases for OTM puts.
C
Volatility skew is a situation where the implied volatility of the calendar spread is higher in the near term and lower in the long term.

Question 2

Q-Code: 21-L3-06-OPST-76187

A sharp increase in the volatility skew together with a spike in the absolute level of implied volatility most likely indicates:

A
a neutral market sentiment.
B
a bullish market sentiment.
C
a bearish market sentiment.

Question 3

Q-Code: 21-L3-06-OPST-76188

Consider the Nikkei 225 Index, the implied volatility of put options on the index that have a 90% moneyness is 19.2 and the implied volatility of call options that have a 110% moneyness is 12.6. The implied volatility of ATM options is 13.2. The volatility skew on the Nikkei 225 is closest to:

A
6.0.
B
6.6.
C
0.6.

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L3 R08 Quiz 06 AL

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Question 1

Question 2

Question 3