Question: 31) As we know from the LTCM case, after every major crisis, the option implied volatility exhibits a smirk pattern. This means: It is the

31) As we know from the LTCM case, after every major crisis, the option implied volatility exhibits a smirk pattern. This means:

It is the result of dynamic hedging.

The smirk is predicted by the option model by Scholes and Merton.

Investors in the market have higher demand to buy insurance against major crises going forward.

The pattern should have been a smile instead of a smirk.

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