What Is the Historical Reason for the Existence of a Volatility Skew in Traditional Equity Options? ▴ Learn

What Is the Historical Reason for the Existence of a Volatility Skew in Traditional Equity Options?

The skew originated from the 1987 stock market crash, which led to a persistent market demand for out-of-the-money put options for portfolio insurance. This demand drove up the IV of OTM puts, resulting in the downward-sloping skew (OTM puts having higher IV than ATM options).

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