Exercise 5.7. Construct a continuous-time version of the model with finite lives and random death. In particular
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Exercise 5.7. Construct a continuous-time version of the model with finite lives and random death. 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 will behave as if he is infinitely lived with an effective discount factor of ρ + ν.
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