By affecting there lative composition of firm assets and the level of operating leverage，the contraction of assets-in-place plays an important role in explaining the risk premium of total assets．Adopting the approaches of real option and pricing kernelin acontinuous-time framework，the paper aims to uncover the influences of contraction options，operating leverage and their interaction on asset risk premium，and to provides the oretical explanations for value premium phenomenon，book-to-market effect and size effect about asset pricing．The basic findings are that contraction option with negative Beta is negatively related to risk premium，while operating leverage is positively associated with risk premium．The interactive influence of operating leverage and contraction option provides an insightful explanation for value premium phenomenon from a perspective on risk-based rational pricing．Further results indicate that contraction option decreases the size efect in explaining risk premium，and operating leverage increases the book-to-market effect and decreases the size effect in explaining risk premium，respectively．