The circumstances where risk can be diversified in a large portfolio of insurance contracts. Introduction: Risk refers to the movement or fluctuation in the value of an investment. The movement can either be positive or negative. A positive fluctuation in the price benefits the investor. The investor will lose money if the price movement in negative. Diversification refers to the process of investing in multiple investment avenues. The principle of diversification states that the risk or the portfolio reduces to some extent if the investor spreads his or her investment across different assets.

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Chapter 10.5, Problem 2CC

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To discuss: The circumstances where risk can be diversified in a large portfolio of insurance contracts.

Introduction:

Risk refers to the movement or fluctuation in the value of an investment. The movement can either be positive or negative. A positive fluctuation in the price benefits the investor. The investor will lose money if the price movement in negative.

Diversification refers to the process of investing in multiple investment avenues. The principle of diversification states that the risk or the portfolio reduces to some extent if the investor spreads his or her investment across different assets.

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