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Risk pooling is an important concept in supply chain management. [2] Risk pooling suggests that demand variability is reduced if one aggregates demand across locations because as demand is aggregated across different locations, it becomes more likely that high demand from one customer will be offset by low demand from another.
The risk premium is used extensively in finance in areas such as asset pricing, portfolio allocation and risk management. [2] Two fundamental aspects of finance, being equity and debt instruments, require the use and interpretation of associated risk premiums with the inputs for each explained below: