# Risk premium at 2nd order

**URL:** https://forum.dynare.org/t/risk-premium-at-2nd-order/4491
**Category:** Dynare help (legacy posts)
**Created:** [20 February 2015 17:27 UTC](https://forum.dynare.org/t/risk-premium-at-2nd-order/4491 "2015-02-20T17:27:24Z")
**Posts on this page:** 3
**Page:** 1

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### Author: ![bkmark\_20](https://forum.dynare.org/letter_avatar_proxy/v4/letter/b/d26b3c/32.png) [@bkmark\_20](https://forum.dynare.org/u/bkmark_20)
#### Post date: [20 February 2015 17:27 UTC](https://forum.dynare.org/t/risk-premium-at-2nd-order/4491/1 "2015-02-20T17:27:24Z")

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Hello,  
I am looking for an example of risk premium implementation in Dynare code.  
I have run the Jermann’s 1998 code (attached) but my variable of interest - equity premium “erp1” - does not appear on Impulse Response figure.  
I understand that it should not respond when the model is approximated at the 1st order. But here, it’s second order approximation, and yet - no response.  
Do you have any clue about this?  
Thank you very much in advance!  
[jermann98.mod](https://forum.dynare.org/uploads/default/original/1X/13bc7fbf6e2e5832093e7552d176310903f6c2af.mod) (2.98 KB)

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### Author: ![stepan-a](https://forum.dynare.org/user_avatar/forum.dynare.org/stepan-a/32/6652_2.png) [@stepan-a](https://forum.dynare.org/u/stepan-a)
#### Post date: [21 February 2015 14:34 UTC](https://forum.dynare.org/t/risk-premium-at-2nd-order/4491/2 "2015-02-21T14:34:23Z")

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Hi, To see a reaction of the risk premium you need at least a third order approximation of the model (this is well documented elsewhere). If you replace the last line by

```auto
stoch_simul (k_order_solver,order=3) erp1, rf1, m1, r1, y, z, c, d, mu, k;
```

you will obtain an IRF for erp1.

Best,  
Stéphane.

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<div class="post-metadata">

### Author: ![bkmark\_20](https://forum.dynare.org/letter_avatar_proxy/v4/letter/b/d26b3c/32.png) [@bkmark\_20](https://forum.dynare.org/u/bkmark_20)
#### Post date: [24 February 2015 22:15 UTC](https://forum.dynare.org/t/risk-premium-at-2nd-order/4491/3 "2015-02-24T22:15:19Z")

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Dear Stéphane,  
Thank you for you reply ! I got indeed the IRF at order 3 (I had to remove the spare parameter “zbar” first - otherwide the code wouldn’t run).  
Best regards!