Sorry for asking this but this math problem has got me confused. How do i go about calculating the threshold value of this problem?
Consider that I have an asset worth 2000. There are two independent threats.
The first occurs with probability 0.05 and would reduce the value of the asset to 100, while the second occurs with probability 0.01 and would completely destroy the asset. Both could occur. What would be the threshold value at which buying insurance would be "worthwhile for both parties"?