We contrast two different asset pricing models, where the pricing kernel either (i) increases in the volatility … dimension, reflecting investors' aversion to volatility, or (ii) could be non-monotonic in volatility, reflecting heterogeneity … in investors' beliefs. The two models yield opposite predictions about volatility tail behavior, whereby the model with …

which idiosyncratic volatility is allowed to be priced. We model the index dynamics' physical distribution as a mean …-reverting stochastic volatility process as in Heston (1993), and the equity returns as single-factor models with stochastic idiosyncratic … volatility terms. We derive theoretically the underlying assets' risk-neutral distributions, and we estimate the parameters of …

Variance premium is studied under a discrete-time consumption-based equilibrium model, with two stochastic volatility …. The implication of the model is that variance premium term structure contains information about two underlying volatility …

. Proposed extensions include a volatility regime switching mechanism (using dummy variables and the Markov approach) and the … fifth risk factor based on realized volatility of index returns. Moreover, instead of using data for stocks of a particular …