Motivated by the implications from a stylized self-contained general equilibrium model incorporating the effects of time-varying economic uncertainty, we show that the difference between implied and realized variation, or the variance risk premium, is able to explain a non-trivial fraction of...

Stock market volatility clusters in time, carries a risk premium, is fractionally integrated, and exhibits asymmetric leverage effects relative to returns. This paper develops a first internally consistent equilibrium based explanation for these longstanding empirical facts. The model is cast in...

Current practice largely follows restrictive approaches to market risk measurement, such as historical simulation or RiskMetrics. In contrast, we propose exible methods that exploit recent developments in nancial econometrics and are likely to produce more accurate risk assessments, treating...