The volatility smile changed drastically around the crash of 1987, and new option pricing models have been proposed to accommodate that change. Deterministic volatility models allow for more flexible volatility surfaces but refrain from introducing additional risk factors. Thus, options are...

In a Lucas exchange economy with standard power utility, we study asset prices under learning and ambiguous information. In contrast with models featuring only learning or ambiguity, our model is successful in matching the equity premium, the interest rate, and the volatility of stock returns...

This paper studies the term structure implications of a simple structural model in which the representative agent displays ambiguity aversion, modeled by Multiple Priors Recursive Utility. Bond excess returns reflect a premium for ambiguity, which is observationally distinct from the risk...