• Aug 12th 2011, 05:34 AM
tinyone
Hi all,

I need help solving a problem.

I have a risk premium of 2 % for a city called K. I also have the market size for that city (in number of people) and the number of days it takes to finish a deal.

I have 30 other cities. I have to find the risk premium for all these cities based on the 2 % for city K with the help of the knowledge I have of all the market sizes for each city and the days it takes to finish a deal.

SO what I want is to put a relation between the city K risk premium and the other cities. Let's say:

City K has a risk premium of 2%. The market size is 20 people and trading days of 40.
City B has a market size of 40 people and trading days of 10. The risk premium should be lower the bigger the market and the fewer the trading days.

How do I derive a risk premium for city B? I know that ratio: market size City B / Market size City K = 2 and that the trading days city B / trading days city K = 0.25.

I have tried asking other economists but they dont know. Pleaase help me find a methodology!

I would really appreciate some help!
• Aug 12th 2011, 08:32 AM
tolland
A first guess would be that your risk premium is related to your independent variables as a ratio some thing like this;