This paper offers an explanation for the properties of the nominal term structure of interest rates and time-varying bond risk premia based on a model with rare consumption disaster risk.  In the model, expected inflation follows a mean reverting process but is also subject to possible large...

In this paper we exploit a fundamental difference between positive and negative rare events to explain the value premium. We show that if booms are expected but do not occur, average in-sample returns will be lower for assets that are exposed to booms than for those that are not. We build a...

After laying dormant for more than two decades, the rare disaster framework has emerged as a leading contender to explain facts about the aggregate market, interest rates, and financial derivatives. In this paper we survey recent models of disaster risk that provide explanations for the equity...