the mean and volatility of equity returns. Our model assumes a small risk of a rare disaster that is calibrated based on … the international data on large consumption declines. We allow the risk of this rare disaster to be stochastic, which … specifications for the stochastic rare disaster probability and show that the data favor a multifrequency process. Finally, we show …

mean and volatility of equity returns. Our model assumes a small risk of economic disaster that is calibrated based on … international data on large consumption declines. We allow the disaster probability to be stochastic, which turns out to be crucial … to the model's ability both to match equity volatility and to reconcile option prices with macroeconomic data on disaster …

between catastrophe risk and the implied volatility smile of insurance stock options. We find that the slope is significantly …, suggesting a higher risk compensation for catastrophic events. We are able to link the insurance-specific tail risk component … derived from options with the risk spread from catastrophe bonds. Our results provide an accurate, high-frequency calculation …