  Emphasizing the statistics of jumps crossing the strike and local time, we
develop a decomposition of equity option risk premiums. Operationalizing this
theoretical treatment, we equip the pricing kernel process with unspanned
risks, embed (unspanned) jump risks, and allow equity return volatility to
contain unspanned risks. Unspanned risks are consistent with negative risk
premiums for jumps crossing the strike and local time and imply negative risk
premiums for out-of-the-money call options and straddles. The empirical
evidence from weekly and farther-dated index options is supportive of our
theory of economically relevant unspanned risks and reveals ``dark matter" in
option risk premiums.
