This dissertation consists of two essays that focus on the topics related to asset pricing with jump risks. The first essay explores the effect of disaster risk on the beliefs and portfolio choices of ambiguity-averse agents. With the introduction of Cressie-Read discrepancies, a time-varying pessimism state variable arises endogenously, generating time-varying disaster risk. In the event of a disaster, agents heighten their pessimism, anticipating subsequent disasters to arrive sooner. Within this framework, we deduce optimal consumption and portfolio choices that are robust to model misspecification. Additionally, our measure of pessimism aids in understanding the stylized facts derived from Vanguard’s retail investor survey data, as reported in Giglio et al. (2021). In the second essay, I construct a novel measure to assess the impact of macro announcements on investors’ risk expectations using S&P 500 index and Treasury futures options. This measure corrects the systematic downward jumps in the option- implied variance measure and isolates innovations of investors’ risk expectations after macro-announcements. Applied to key economic releases, including FOMC meetings, GDP, PPI, and Employment data announcements, this measure reveals that macro announcements significantly increase investors’ risk expectations compared to pre-announcement levels. Furthermore, I show investor sentiment significantly declines following macro-announcements with heightened risk expectations, and tail risk positively correlates with risk expectations.

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