ohai

My understanding of the logic is the following:

if your income volatility is high, it limits your future spending planing, the present value of your future expenditures is lower and thus you need less insurance to cover it

when you buy an insurance you insure your life or the stream of future income per se, not its volatility... thus, the level of volatility impacts the amount to hedge



Edited 1 time(s). Last edit at Monday, January 17, 2011 at 11:09AM by diehard.