Explanation

When an empirical distribution derived from option prices using the Black-Scholes-Merton (BSM) model exhibits a fatter right tail than a lognormal distribution, this indicates a volatility smile/skew pattern where:

• Fatter right tail means higher probability of large positive price movements
• In option pricing terms, this corresponds to higher implied volatilities for out-of-the-money call options (high strike prices)
• This creates an upward sloping volatility curve where implied volatility increases with strike price

This phenomenon is often observed in equity markets where:

• Investors are willing to pay higher premiums for upside protection
• Market participants anticipate potential large positive moves
• There's greater demand for call options at higher strikes

Option B would be correct for a fatter left tail (negative skew), which is more common in equity markets due to crashophobia.

Option A would indicate no volatility smile (flat implied volatility curve).

Option D would suggest a different pattern not typically associated with fatter tails.