I generalize the long-run risks (LRR) model of Bansal and Yaron (2004) by incorporating recursive smooth ambiguity aversion preferences from Klibanoff et al. (2005, 2009) and time-varying ambiguity. Relative to the Bansal-Yaron model, the generalized LRR model is as tractable but more flexible...

In this dissertation we present a new option pricing model - called the 2-Factor SV (stochastic volatility) model - which allows to account for time-varying risk aversion. Thereby, we are able to capture the empirical properties of pricing kernels, such as time-variation and the typical S-shape,...