Extreme market outcomes are often followed by a lack of liquidity and a lack of trade. This market collapse seems particularly acute for markets where traders rely heavily on a specific empirical model such as in derivative markets like the market for mortgage backed securities or credit...

Recent developments in intertemporal asset pricing theory focus on two sets of fundamental determinants of asset returns. Models with complete markets emphasize aggregate variables such as per capita consumption. Such models have not performed well empirically. Models with incomplete markets...

We use equity index options to quantify the distribution of consumption growth disasters. The challenge lies in connecting the risk-neutral distribution of equity returns implied by options to the true distribution of consumption growth estimated from macroeconomic data. We attack the problem...