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Hi, I want to exemplify the interpretation of the certainty equivalent of wealth. Please correct me if I am wrong.
The certainty equivalent of wealth is “that amount of wealth such that the investor is indifferent between receiving it for sure at the horizon and having current wealth and the opportunity to invest it optimally up to the horizon”. (This definition is from research by Brennan, Schwartz & Lagnado (1997))
So for example, Julia, I can give you 100 dollars in 10 years, or, I can give you the certainty equivalent of wealth (an amount) right now and you can invest it however you want for 10 years.
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