We introduce an option-implied proxy for the health of financial intermediaries—the Leverage Bearing Capacity (LBC). LBC is the leverage of a fictitious intermediary that targets a fixed level of risk and rebalances its capital structure on an ongoing basis. Our measure is based on market...

We introduce a new proxy for the health of financial intermediaries-the Leverage Bearing Capacity (LBC). LBC is the leverage of a fictitious intermediary that targets a fixed level of risk and rebalances its capital structure on an ongoing basis. Our measure is based on market values, available...

Investors pay a substantial premium to hedge against fluctuations in volatility—the variance risk premium (VRP). The asset-pricing literature has presented numerous models with jumps in economic fundamentals to reproduce the properties and the time variation of the VRP. This paper shows that...

This paper studies the role of generalized disappointment aversion (GDA) in reconciling several asset-pricing puzzles in models of long-run risks. To fully capture the nonlinearities introduced by these preferences, we solve the model globally with projection. This allows us to scrutinize the...