We use a novel pricing model to filter times series of diffusive volatility and jump intensity from Samp;P 500 index options. These two measures capture the ex-ante risk assessed by investors. We find that both components of risk vary substantially over time, are quite persistent, and correlate...

In the presence of jump risk, expected stock return is a function of the average jump size, which can be proxied by the slope of option implied volatility smile. This implies a negative predictive relation between the slope of implied volatility smile and stock return, which is strongly...