This paper revisits the time-series relation between the conditional risk premium and variance of the equity market portfolio. The main innovation is that we construct a measure of the ex ante equity market risk premium using corporate bond yield spread data. This measure is forward-looking and does not rely critically on either realized equity returns or instrumental variables. We find strong ...

Many types of insurance premium principles and/or risk measures can be characterized by means of a set of axioms, which in many cases are rather arbitrarily chosen and not always in accordance with economic reality. In the present paper we generalize Yaari’s risk measure by relaxing his axioms. In addition, we derive translation invariant minimal Orlicz risk measures, which we call Haezendonck ...

The commercial sex sector bears an importance disproportionate to its size in terms of disease transmission. Epidemiological models suggest that the behavioral response of highactivity core groups like sex workers is critical to the course of HIV and other sexually transmitted infection (STI) epidemics (Shahmanesh et al. 2008). Existing research shows that female sex workers in developing count...

We analyze the volatility risk premium by applying a modified two-pass Fama-MacBeth procedure to the returns of a large cross section of the returns of options on individual equities. Our results provide strong evidence of a volatility risk premium that is increasing in the level of overall market volatility. This risk premium provides compensation for risk stemming both from the characteristic...

by Mordecai Kurz and Maurizio Motolese A very preliminary draft: February 2, 2010 Summary: Why do risk premia vary over time? We examine this problem theoretically and empirically by studying the effect of market belief on risk premia. Individual belief is taken as a fundamental, primitive, state variable. Market belief which is the distribution of individual beliefs is observable, it is centra...

This paper contributes to the literature on market disciplining of the sovereign governments in two ways: Firstly, it distinguishes the both sides of the market discipline hypothesis (MDH) by adopting three-stage least square estimation (3SLS) to incorporate the contemporaneous feedback effects between primary structural budget balances and country default risk premium. Secondly, by utilizing t...

We explore the reasons why out-of-the-money index puts trade on much higher implied volatilities than out-of-the-money calls. We develop a trading strategy that exploits the skew in implied volatility, and show that it has a simple interpretation. The pay-off to the strategy is identical to that on a swap whose floating leg is equal to the covariation between returns and changes in implied vari...

This paper studies foreign exchange risk premium using the uncovered interest rate parity framework in a single country context. The analysis is performed using weekly data on foreign and domestic currency deposits in Armenian banking system. The paper provides the results of the simple tests of uncovered interest parity condition, which indicate that contrary to established view dominating in ...

Can the historical equity premium be explained as a rational equilibrium outcome when riskaverse agents with conventional preferences are faced with non-diversifiable sources of risk (e.g., from labor or entrepreneurial income), and when trading frictions prevent them from using financial assets to effectively self-insure transitory shocks? Our research suggests that it is difficult to generate...