AppliedMultiple choice
Index implied correlation has tended to exceed the correlation later realised between index members. Why might that persist?
- AIndex options are less liquid than single-stock options, so they trade at a discount
- BInvestors buy index puts as crash insurance, and correlations spike in crashes
- CRealised correlation cannot be measured, so any comparison is meaningless
- DSingle-stock options are always priced with zero implied volatility premium
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