Study of disaster risk models

Recent studies tried to explain puzzles in asset pricing theory within a frame of disaster models. In my study I examine baseline parameters like probability of disaster and disaster size and try to make a better estimate for both of them. Furthermore I imply a standard constant probability disaster model for blocks of developed and less developed economies to challenge if disaster models can explain different equity premium rates and risk-free rates in different economies. I found that a constant probability disaster model cannot explain simultaneously high equity premiums and low risk-free rates even if I use a sample of split data for developed and less developed economies.