Template-Type: ReDIF-Paper 1.0
Author-Name: Emile A. Marin
Author-Name-First: Emile A.
Author-Name-Last: Marin
Author-Name: JiYong Jung
Author-Name-First: JiYong
Author-Name-Last: Jung
Author-Workplace-Name: Department of Economics, University of California Davis
Title: Looking for Risk: Volatility Bounds in Macro
Abstract: We characterize the gap between the equity risk premium (ERP) and its SVIX-implied lower bound as an equilibrium object, increasing in the correlation of valuations and returns, their relative volatility, and risk aversion. Higher risk premia need not be reflected in options-implied volatility. Yet, models resolving the equity premium puzzle through high risk aversion will tend to understate the lower bound and risk-neutral variance of returns. Applying our findings to a RBC economy with disasters, we consider an increase in their probability leading to a 1 p.p. rise in the ERP, but a
 negligible rise in the SVIX-implied bound (10 b.p.).
Length: 
File-URL: https://repec.dss.ucdavis.edu/files/kyl1jmn4th7ra7xs0lf422v4t112/Looking_for_Risk_final.pdf
File-Format: application/pdf
Number: 378
Classification-JEL: 
KeyWords: 
Creation-Date: 20260319
Handle: RePEc:cda:wpaper:378