@techreport{NBERw15062,
 title = "Crash Risk in Currency Markets",
 author = "Emmanuel Farhi and Samuel Paul Fraiberger and Xavier Gabaix and Romain Ranciere and Adrien Verdelhan",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "15062",
 year = "2009",
 month = "June",
 URL = "http://www.nber.org/papers/w15062",
 abstract = {How much of carry trade excess returns can be explained by the presence of disaster risk? To answer this question, we propose a simple structural model that includes both Gaussian and disaster risk premia and can be estimated even in samples that do not contain disasters. The model points to a novel estimation procedure based on currency options with potentially different strikes. We implement this procedure on a large set of countries over the 1996--2008 period, forming portfolios of hedged and unhedged carry trade excess returns by sorting currencies based on their forward discounts. We find that disaster risk premia account for about 25% of expected carry trade excess returns in advanced countries.},
}