Question: Problem 3. (Volatility smile and skew, 8 ) a. What is a volatility smile, and what is volatility skew? (4') b. Explain the reverse skew

Problem 3. (Volatility smile and skew, 8 ) a. What is

Problem 3. (Volatility smile and skew, 8 ) a. What is a volatility smile, and what is volatility skew? (4') b. Explain the reverse skew for the Black-Scholes implied volatility of the SP500 index. (4')

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