Question
Suppose Burt and Ernie each face a 10% likelihood of breaking their leg this year (ones a circus clown, the other a fireman). Suppose, too,
Suppose Burt and Ernie each face a 10% likelihood of breaking their leg this year (ones a circus clown, the other a fireman). Suppose, too, that the medical costs of a broken leg run $5,000.
What is Burts expected loss?
What is the likelihood Burt will have to pay $5,000 in medical bills this year?
Now suppose Burt and Ernie decide to pool their losses.
What is Burts expected loss?
What is the likelihood Burt will have to pay $5,000 in medical bills this year?
If Burt and Ernie pool their risks, will they reduce or transfer their total risks?
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High Frequency Financial Econometrics
Authors: Yacine Aït Sahalia, Jean Jacod
1st Edition
0691161437, 978-0691161433
