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Medium · Options & Greeks · Quant Trader interview question · volatility-skew, options, equity-markets, risk-aversion
In equity markets, out-of-the-money (OTM) put options generally have higher implied volatilities than out-of-the-money (OTM) call options with the same expiration date. This phenomenon is known as the volatility skew. Which of the following is the MOST accurate explanation for this observation?