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.
Risk premium City B = Risk premium city K x ?
I have tried asking other economists but they dont know. Pleaase help me find a methodology!
I would really appreciate some help!