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Let r(x) = - u''(x) / u'(x) be the absolute risk aversion coefficient and rr(x) = xr(x) the relative risk aversion coefficient. a) Show that
Let r(x) = - u''(x) / u'(x) be the absolute risk aversion coefficient and rr(x) = xr(x) the relative risk aversion coefficient. a) Show that for u(x) = -e-A(x), the coefficient of absolute risk aversion is constant and equal to A.
b) Show that for u(x) = (x1-a ) / (1-a) , the coefficient of relative risk aversion is constant and equal to a
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