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# The Equity Risk Premium: Unified Modeling and Python Automation
- URL: https://fsc.stevens.edu/the-equity-risk-premium-unified-modeling-and-python-automation/
- Published: 2021-08-11T16:21:30.000Z
- Updated: 2026-05-16T22:39:41.000Z
- Author: Akshat Goel
- Tags: Events, #Import 2024-05-30 10:26, #Import 2025-11-08 22:14

The US equity risk premium (ERP) is discussed in the context of broad-based market indices. The forward-looking ERP is estimated from options markets, which provide a market-based risk-neutral pdf for prices in the future. These pdf’s are transformed to real-world distributions via a well-known exponential tilt transformation. The tilt parameter is interpreted as the Coefficient of Relative Risk Aversion (CRRA) of a representative agent. Historically, I show CRRA in the range (2,4) Is a robust result and narrow this to my preferred range 3 ± 0.8 via a post-WW2 bootstrap. Two methods are given for the risk-neutral distribution estimation and other topics may be briefly touched upon.

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