Answer: Currency options exhibit volatility smiles because the at-the-money option have higher implied volatility away-from-the-money options.

## Explanation **Statement A is incorrect** because: - Currency options typically exhibit a **volatility smile** where both out-of-the-money (OTM) and in-the-money (ITM) options have higher implied volatility than at-the-money (ATM) options - The statement incorrectly claims that ATM options have higher implied volatility than away-from-the-money options, which is the opposite of what actually occurs in currency markets **Statement B is correct**: - Volatility frowns (or reverse smiles) can occur when there are jumps in asset prices, particularly when jumps are more likely in one direction **Statement C is correct**: - Equity options typically exhibit a **volatility smirk** (or skew) where low strike price (OTM put) options have higher implied volatility than high strike price (OTM call) options - This reflects the market's greater concern about downside risk and potential crashes in equity markets **Key Differences**: - **Currency options**: Symmetric volatility smile (higher volatility for both OTM calls and puts) - **Equity options**: Asymmetric volatility smirk (higher volatility for OTM puts than OTM calls) - **Volatility frown**: Reverse pattern that can occur with jump processes

Author: LeetQuiz .