Prior to the stock market crash of 1987, Black-Scholes implied volatilities of Samp;P 500 index options were relatively constant across moneyness. Since the crash, however, deep out-of-the-money Samp;P 500 put options have become %u2018expensive%u2019 relative to the Black-Scholes benchmark....

We study the pricing of uncertainty shocks using a wide-ranging set of options that reveal premia for macroeconomic risks. Portfolios hedging macro uncertainty have historically earned zero or even significantly positive returns, while those exposed to the realization of large shocks have earned...