This dissertation, "Two Essays on Asset Pricing" by Dan, Luo,, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: This thesis centers around the pricing and risk-return tradeoff of credit and equity derivatives. The first essay studies the pricing in the CDS Index (CDX) tranche market, and whether these instruments have been reasonably priced and integrated within the financial market generally, both before and during the financial crisis. We first design a procedure to value CDO tranches using an intensity-based model which falls into the affine model class. The CDX tranche spreads are efficiently explained by a three-factor version of this model, before and during the crisis period. We then construct tradable CDX tranche portfolios, representing the three default intensity factors. These portfolios capture the same exposure as the S&P 500 index optionmarket, to a market crash. We regress these CDX factors against the underlying index, the volatility factor, and the smirk factor, extracted from the index option returns, and against the Fama-French market, size and book-to-market factors. We finally argue that the CDX spreads are integrated in the financial market, and their issuers have not made excess returns. The second essay explores the specifications of jumps for modeling stock price dynamics and cross-sectional option prices. We exploit a long sample of about 16 years of S&P500 returns and option prices for model estimation. We explicitly impose the time-series consistency when jointly fitting the return and option series. We specify a separa