The implied volatility smile commonly seen in equity options is due to the higher probability of a greater than three standard deviation price change than would be expected if prices are lognormally distributed.

The implied volatility smile commonly seen in foreign exchange rate options is due to the higher probability of a price change of between one and two standard deviations from the mean than would be expected if prices are lognormally distributed.

Demand for option protection against the impact of unexpected central bank announcements on foreign exchange rates leads to higher prices, and higher implied volatilities, for at-the-money options relative to out-of-the-money options.