Koulovatianos, Christos; Wieland, Volker - 2011 - 1st Version: May 20, 2011, This version: July 28, 2011
This paper proposes a new approach for modeling investor fear after rare disasters. The key element is to take into account that investors' information about fundamentals driving rare downward jumps in the dividend process is not perfect. Bayesian learning implies that beliefs about the...
