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Diversifiable and Non-diversifiable Risk and the Advanced Choice under Ambiguous or Uncertain Conditions

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  • M.J. Alhabeeb

Abstract

The objective of this paper is to revisit the concepts of diversifiable and non-diversifiable risk, expound the portfolio risk in two ways- mathematically first, and with practical examples, second It also explains lending and borrowing at the risk-free rate of return, in addition to juxtaposing the diversification method to measure the unsystematic risk against utilizing Beta to measure the systematic risk. Furthermore, it briefly examines the mathematical simulation and sensitivity analysis, and mathematically delineates the technique for choices under risk, ambiguity, and uncertainty. The practical implication of this conceptual paper is to offer a further clarification of theoretical terms, especially those which might be interchangeable in financial and economic literature, and further show, by examples, the terms’ applicability.

Suggested Citation

  • M.J. Alhabeeb, 2021. "Diversifiable and Non-diversifiable Risk and the Advanced Choice under Ambiguous or Uncertain Conditions," International Business Research, Canadian Center of Science and Education, vol. 14(12), pages 1-96, December.
    • Handle: RePEc:ibn:ibrjnl:v:14:y:2021:i:12:p:96
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    References listed on IDEAS

    as
    1. André F. Perold, 2004. "The Capital Asset Pricing Model," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 3-24, Summer.
    2. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 25(2), pages 65-86.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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