Stochastic Volatility Models Are Said to Incorporate the "Leverage" Effect

Multiple Choice

Stochastic volatility models are said to incorporate the "leverage" effect. The presence of the leverage effect

A) Results in a left skew in the options smile because stock price drops are associated with higher firm leverage and so with increased volatility.
B) Results in a right skew in the options smile because stock price increases are associated with higher firm leverage and so with increased volatility.
C) Results in a symmetric distribution of stock returns, resulting in higher option prices both in- and out-of-the-money.
D) All option models have a leverage effect because the option is a leveraged position in stock. The stochastic volatility model exacerbates this effect.