Financial Risk Manager Part 2
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Q-110. A risk manager is examining a firm's equity index option price assumptions. The observed volatility skew for a particular equity index slopes downward to the right. Compared to the lognormal distribution, the distribution of option prices on this index implied by the Black-Scholes-Merton (BSM) model would have:
A
A fat left tail and a thin right tail.
B
A fat left tail and a fat right tail.
C
A thin left tail and a fat right tail.
D
A thin left tail and a thin right tail.