... derivatives are examined by Liu and Pan (2003), Liu, Longstaff, and Pan (2003) and Das and Uppal (2001). Dufresne and Hugonnier (2001) study the impact of event risk on pricing and hedging ofcontingent ... parameters for thereference model P set as follows. For the diffusive component, the vola-tility is set at s ¼ 15%. For the jump component,19the arrival intensity isl ¼ 1/3, and the random jump ... Jackwerth and Rubinstein (1996) and Pan (2002).An Equilibrium Model of Rare-Event Premiums149An Equilibrium Model of Rare-EventPremia and Its Implication for Option SmirksJun LiuAnderson...