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...

We propose a Wishart Affine Stochastic Correlation (WASC) model for the joint dynamics of the SDF in an international economy. We derive exchange rate dynamics and a quasi-closed-form solution for currency option pricing. This solution includes Heston's stochastic volatility model as a special...

Directed links in cash flow networks affect the cross-section of price exposures and market prices of risk in equilibrium. In an asset pricing model featuring mutually exciting jumps, we measure directedness through an asset's shock propagation capacity (spc). In the model, we prove: (i) Cash...

We show that the widely documented negative relation between idiosyncratic volatility (IVOL) and expected returns can be explained by the mean reversion of stocks' idiosyncratic volatilities. We use option-implied information to extract the mean reversion speed of IVOL in an almost model-free...

We propose a long-run risk model with stochastic volatility, a time-varying mean reversion level of volatility, and jumps in the state variables. The special feature of our model is that the jump intensity is not affine in the conditional variance but driven by a separate process. We show that...

This paper explores how economic uncertainty evolves over time and how it is priced in the market. We solve for the variance premium, the prices of equity index options, and the prices of volatility related derivatives in a long-run risks model. We find that both short-run and long-run...