CFA Practice Question

There are 227 practice questions for this study session.

CFA Practice Question

The volatility surface should be ______ in theory. In practice it is ______.

A. flat; flat
B. flat; non-flat
C. non-flat; flat
Correct Answer: B

If the BSM model assumptions were true, then one would expect to find the volatility surface flat. In practice, the volatility surface is far from flat and often varies over time because the assumptions of the BSM model are not always true.

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