Since the
undiversifiable risk of international lending is considerably high, lenders' portfolio decisions should be based on the impacts of lending on the risk of lender's bankruptcy.
market that have an amount of
undiversifiable risk comparable to the
(109) To induce a reduction in risk taking, returns to
undiversifiable risk, as well as supernormal returns, could be taxed by imputing and exempting interest on equity at a riskless rate.
(3) That part of the risk of a stock that can be eliminated is called diversifiable risk, while that part that cannot be eliminated is termed market risk, or
undiversifiable risk.
However, because of the "stickiness" of regulated insurer capital, catastrophe risk should be considered as an
undiversifiable risk, both within individual insurers and across the insurance and reinsurance markets.
In this case, the insurer would charge each client only for operating costs (C) and the
undiversifiable risk that client imposed on insurance reserves and these charges would allow the insurer to maintain an optimal fund of explicit reserves and intangible taxpayer catastrophic support.
Spackman (no date) of the UK Treasury tried estimating the
undiversifiable risk after optimal pooling of projects, which is correlated with incomes or wealth of taxpayers and thus imposes some positive cost of risk-bearing on taxpayers.(16) When estimating the cost of risk-bearing for taxpayers, he finds that it affects the discount rate -- estimated at some 6 per cent annually in real terms -- only marginally, adding 0.1 per cent.(17) The discount rate of small countries or countries with a small tax base would, of course, be affected more dramatically.
Typically, managers do not tender their personal shares in TOSRs, which increases their personal
undiversifiable risk (Ofer and Thakor, 1987).
The measure is also conservative in that while having options increases the
undiversifiable risk that managers must bear, the valuation of those options is positively related to the riskiness of the stock.
The greater the
undiversifiable risk becomes, the more domestic savers reduce their holdings of X assets, and the greater is the share of investment in X done by foreign savers.