If the distribution is skewed to the right,Black-Scholes overprices out-of-the-money puts and in-the-money calls. It underprices in-the-money puts and out-of-the-money calls.
Stock price log-returns distribution is skewed to the right means it is a log-normal distribution.
I know the moments of log-normal distribution and how it relates to normal distribution.
But how does Black-Scholes-Merton formula overprice out-of-the money puts and in-the-money calls and underprice in-the-money puts and out-of-the calls?
It is just because of volatility of option prices at different strike prices or any other reason?