While no analysis of the skew is yet definitive, the explanation most consistent with my interviews is Bates's suggestion that the index options markets in the United States have come to resemble the markets in catastrophe risk: … The stock index options markets ... appear to be functioning as an insurance market. A large clientele of assorted institutional investors predominantly buy stock index options, whereas a relatively small number of specialized option market making firms predominantly write them. These firms can delta-hedge their positions against small market fluctuations, but are perforce exposed in aggregate to jump and volatility risks. ... Consequently, market makers limit their exposure to these risks by risk management techniques such as value at risk [see glossary] and worst-case scenario analysis. The limited capitalization of the market makers implies a limited supply of options, and the pricing of the extra risks spanned by options at the shadow prices of investors with relatively high aversions to those risks.

Donald MacKenzie, An Engine, Not a Camera, loc. 926