Question

What is "basis risk" in the context of insurance derivatives?

a.

The difference between the buyer's individual loss ratio and the industry loss ratio

b.

The risk associated with natural catastrophes

c.

The risk of adverse weather conditions

d.

The risk of financial market volatility

Answer: (a).The difference between the buyer's individual loss ratio and the industry loss ratio Explanation:In the context of insurance derivatives, "basis risk" refers to the difference between the buyer's individual loss ratio and the industry loss ratio used in the derivative transaction.

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Q. What is "basis risk" in the context of insurance derivatives?

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