Recent empirical evidence suggests that the compensation for rare events accounts for a large fraction of the average equity and variance premia. I replicate this fact in a parsimonious consumption-based asset pricing model based on a (generalized) disappointment averse investor and...

In this paper we will introduce a hybrid option pricing model that combines the classical tempered stable model and regime switching by a hidden Markov chain. This model allows the description of some stylized phenomena about asset return distributions that are well documented in financial...

Risk neutral densities (RND) can be used to forecast the price of the underlying basis for the option, or it may be used to price other derivates based on the same sequence. The method adopted in this paper to calculate the RND is to firts estimate daily the diffusion process of the underlying...