Question: Suppose a consumer with a wealth W that is distributed according to a density law of probability f W (w). Show that we can obtain

Suppose a consumer with a wealth W that is distributed according to a density law of probability f_W (w). Show that we can obtain an approximation of the cost of risk, CR, using: CR1/2rr(w)CVww

where rr (w) is the coefficient of relative risk aversion measured at w,w is the mean of wealth, CVw , its coefficient of variation and w , its standard deviation.

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