Tests for the existence and the sign of the volatility risk premium are often based on expected option hedging errors. When the hedge is performed under the ideal conditions of continuous trading and correct model specification, the sign of the premium is the same as the sign of the mean hedging...

This paper breaks the correlation risk premium down into two components: a premium related to the correlation of continuous stock price movements and a premium for bearing the risk of co-jumps. We propose a novel way to identify both premiums based on dispersion trading strategies that go long...

This paper studies the effects of introducing storable inputs into a general equilibrium model of endogenous growth. We explicitly account for an occasionally binding non-negativity constraint on storage. To solve the model, we rely on global non-linear solution methods, allowing us to make...

The optimal portfolio as well as the utility from trading stocks and derivatives depends on the risk factors and on their market prices of risk. We analyze this dependence for a CRRA investor in a model setup with stochastic volatility and stochastic jumps in the stock price and its volatility....

We study a long-run risk model with a stochastic consumption growth rate, a stochastic volatility, a stochastic jump intensity, and a stochastic mean reversion level for the latter two processes. First, using a square-root specification instead of the Ornstein-Uhlenbeck process suggested by...

We generalize and extend the long-run risk model by Drechsler and Yaron (201'7 by separating the processes for the jump intensity and the stochastic conditional variance. Furthermore we replace their Ornstein-Uhlenbeck specification for the long-run mean of the conditional variance by a...

Tests for the existence and the sign of the volatility risk premium are often based on expected option hedging errors. When the hedge is performed under the ideal conditions of continuous trading and correct model specification, the sign of the premium is the same as the sign of the mean hedging...

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...