Construct a continuous-time version of the model

Reference no: EM131136052

Construct a continuous-time version of the model with finite lives and random deaths (recall (5.12) in the text). In particular suppose that an individual faces a constant (Poisson) flow rate of death equal to ν > 0 and has a true discount factor equal to ρ. Show that this individual behaves as if she were infinitely lived with an effective discount factor of ρ + ν.

Reference no: EM131136052

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