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Suppose a firm has annual risk to its assets mentioned as the standard deviation in their market values (in percentage terms). For this year, the
Suppose a firm has annual risk to its assets mentioned as the standard deviation in their market values (in percentage terms). For this year, the annual report suggests there is a 10% risk (\\\\sigma )to the value of its assets. The firm has two choices, either to retain or transfer to insurance companies. The minimum retention level is 5% of the risk and the maximum is all of it.
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