Answer: Greater implied volatilities for high strike prices.

## 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.

Author: LeetQuiz .