Volatility Skew

[garchrookie]

Volatility skew implies that Options with low strike prices have higher volatilities

These options include deep-out-of-the-money-puts and deep-in-the-money calls. Am I correct?

My question is why investors are willing to pay a higher price/volatility to buy deep-in-money calls?

(I understand that investors have a strong demand to buy deep-out-of-the-money puts to hedge against market crash. Accordingly, they pay a higher price for deep out-of-the-money puts.)

Thanks you for your response in advance.

 

[ShaktiRathore]

hi
Obviously when stock price falls due to uncertainty and loss aversion investors are willing to buy deep OTM puts. But deep ITM calls are priced higher see here:
http://forum.bionicturtle.com/threa...or-equity-option-and-leverage.1765/#post-6173
Here David explains why as why deep ITM are priced higher/volatility. Its hull interpretation of skew.

thanks