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

2021 ◽  
Vol 14 (12) ◽  
pp. 82
Author(s):  
M.J. Alhabeeb
Keyword(s):  
Practical Implication ◽  
Rate Of Return ◽  
Portfolio Risk ◽  
Economic Literature ◽  
Theoretical Terms ◽  
Conceptual Paper ◽  
Risk Ambiguity ◽  
Risk Free Rate ◽  
Choices Under Risk ◽  
Free Rate

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.

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

2021 ◽  
Vol 14 (12) ◽  
pp. 96
Author(s):  
M.J. Alhabeeb
Keyword(s):  
Practical Implication ◽  
Rate Of Return ◽  
Portfolio Risk ◽  
Economic Literature ◽  
Theoretical Terms ◽  
Conceptual Paper ◽  
Risk Ambiguity ◽  
Risk Free Rate ◽  
Choices Under Risk ◽  
Free Rate

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.

Principles for modelling financial markets

1996 ◽  
Vol 33 (03) ◽  
pp. 601-613 ◽  
Author(s):  
Eckhard Platen ◽  
Rolando Rebolledo
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Real World ◽  
Market Model ◽  
Rate Of Return ◽  
Probability Measures ◽  
Market Clearing ◽  
The Difference ◽  
Risk Free Rate ◽  
Free Rate

The paper introduces an approach focused towards the modelling of dynamics of financial markets. It is based on the three principles of market clearing, exclusion of instantaneous arbitrage and minimization of increase of arbitrage information. The last principle is equivalent to the minimization of the difference between the risk neutral and the real world probability measures. The application of these principles allows us to identify various market parameters, e.g. the risk-free rate of return. The approach is demonstrated on a simple financial market model, for which the dynamics of a virtual risk-free rate of return can be explicitly computed.

The risk free rate of return in UK property pricing

2011 ◽  
Vol 4 (3) ◽  
pp. 165-184 ◽  
Author(s):  
Norman Hutchison ◽  
Patricia Fraser ◽  
Alastair Adair ◽  
Rahul Srivatsa
Keyword(s):  
Rate Of Return ◽  
Risk Free Rate ◽  
Free Rate

scholarly journals Empirical Testing of Capital Asset Pricing Model on Bahrain Bourse

2015 ◽  
Vol 7 (2) ◽  
pp. 107 ◽  
Author(s):  
Iqbal Thonse Hawaldar
Keyword(s):  
Rate Of Return ◽  
Standard Theory ◽  
Capital Asset Pricing ◽  
Test Results ◽  
Market Returns ◽  
Portfolio Returns ◽  
Capm Model ◽  
Risk Free Rate ◽  
The Relationship ◽  
Free Rate

<p>The study is undertaken to find out the relationship between portfolio returns and market returns and test the empirical validity of the standard CAPM model on Bahrain Bourse. The study is based on 39 companies listed in the Bahrain Bourse, Bahrain All Share Index as market proxy and yield of Government of Bahrain securities as risk free rate of return. The study covers period from January 1, 2011 to December 31, 2014.  The analysis of the results of the study revealed that many of the independent variables together with beta can explain the portfolio returns.  However, the intercept test reveals that the portfolio returns are equal to the risk-free rate of return. Therefore, we can conclude that the results of intercept test of standard CAPM proves the theory and the beta test results goes against the standard theory.  </p>

scholarly journals Optimal Portfolio Selection in Ex Ante Stock Price Bubble and Furthermore Bubble Burst Scenario from Dhaka Stock Exchange with Relevance to Sharpe’s Single Index Model

2012 ◽  
Vol 3 (3) ◽  
pp. 29-42
Author(s):  
Javed Bin Kamal
Keyword(s):  
Stock Price ◽  
Stock Exchange ◽  
Rate Of Return ◽  
Single Index ◽  
Index Model ◽  
Single Index Model ◽  
Price Bubble ◽  
Ex Ante ◽  
Risk Free Rate ◽  
Free Rate

The paper aims at constructing an optimal portfolio by applying Sharpe’s single index model of capital asset pricing in different scenarios, one is ex ante stock price bubble scenario and stock price bubble and bubble burst is second scenario. Here we considered beginning of year 2010 as rise of stock price bubble in Dhaka Stock Exchange. Hence period from 2005 -2009 is considered as ex ante stock price bubble period. Using DSI (All share price index in Dhaka Stock Exchange) as market index and considering daily indices for the March 2005 to December 2009 period, the proposed method formulates a unique cut off point (cut off rate of return) and selects stocks having excess of their expected return over risk-free rate of return surpassing this cut-off point. Here, risk free rate considered to be 8.5% per annum (Treasury bill rate in 2009). Percentage of an investment in each of the selected stocks is then decided on the basis of respective weights assigned to each stock depending on respective ‘β’ value, stock movement variance representing unsystematic risk, return on stock and risk free return vis-à-vis the cut off rate of return. Interestingly, most of the stocks selected turned out to be bank stocks. Again we went for single index model applied to same stocks those made to the optimum portfolio in ex ante stock price bubble scenario considering data for the period of January 2010 to June 2012. We found that all stocks failed to make the pass Single Index Model criteria i.e. excess return over beta must be higher than the risk free rate. Here for the period of 2010 to 2012, the risk free rate considered to be 11.5 % per annum (Treasury bill rate during 2012).

MONOTONICITY IN THE VOLATILITY OF SINGLE-BARRIER OPTION PRICES

2006 ◽  
Vol 09 (06) ◽  
pp. 987-996 ◽  
Author(s):  
JONATAN ERIKSSON
Keyword(s):  
Option Price ◽  
Rate Of Return ◽  
Barrier Options ◽  
Option Prices ◽  
Barrier Option ◽  
Volatility Models ◽  
Risk Free Rate ◽  
Log Normal ◽  
Free Rate ◽  
Normal Stock

We generalize earlier results on barrier options for puts and calls and log-normal stock processes to general local volatility models and convex contracts. We show that Γ ≥ 0, that Δ has a unique sign and that the option price is increasing with the volatility for convex contracts in the following cases: • If the risk-free rate of return dominates the dividend rate, then it holds for up-and-out options if the contract function is zero at the barrier and for down-and-in options in general. • If the risk-free rate of return is dominated by the dividend rate, then it holds for down-and-out options if the contract function is zero at the barrier and for up-and-in options in general. We apply our results to show that a hedger who misspecifies the volatility using a time-and-level dependent volatility will super-replicate any claim satisfying the above conditions if the misspecified volatility dominates the true (possibly stochastic) volatility almost surely.

Principles for modelling financial markets

1996 ◽  
Vol 33 (3) ◽  
pp. 601-613 ◽  
Author(s):  
Eckhard Platen ◽  
Rolando Rebolledo
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Real World ◽  
Market Model ◽  
Rate Of Return ◽  
Probability Measures ◽  
Market Clearing ◽  
The Difference ◽  
Risk Free Rate ◽  
Free Rate

The paper introduces an approach focused towards the modelling of dynamics of financial markets. It is based on the three principles of market clearing, exclusion of instantaneous arbitrage and minimization of increase of arbitrage information. The last principle is equivalent to the minimization of the difference between the risk neutral and the real world probability measures. The application of these principles allows us to identify various market parameters, e.g. the risk-free rate of return. The approach is demonstrated on a simple financial market model, for which the dynamics of a virtual risk-free rate of return can be explicitly computed.

scholarly journals Equanimity of Risk and Return Relationship between Shariah Index and General Index in India

2011 ◽  
Vol 2 (5) ◽  
pp. 213-222 ◽  
Author(s):  
M. Dharani
Keyword(s):  
Rate Of Return ◽  
Sample Period ◽  
Risk And Return ◽  
Bear Market ◽  
General Index ◽  
Significant Difference ◽  
The Mean ◽  
Risk Free Rate ◽  
Common Index ◽  
Free Rate

The present study empirically examines the risk and return of the Nifty Shariah index and Nifty index during the period 2nd January 2007 to 31st December 2010. The sample period is further divided into bull market period and bear market period based on the movement of the both indices during the study period. The objective of the study is to analyse the performance of the Islamic index and common index and to test whether any significant difference between both indices in India. Based on the previous studies, the present paper employs Risk adjusted measurement such as Sharpe index, Treynor Index and Jensen alpha. The t- test is used to test the mean returns difference between both indices. The study found that Nifty Shariah has been underperformed during the sample and sub sample period. According to ttest, the mean difference between both indices has not been significant which reveals both are consistent. The risk adjusted returns for the both indices reveals that both were underperforming with respect to risk free rate of return. The study has also disclosed the low volatile nature of Nifty Shariah than Nifty index. Finally, the study concludes that Nifty Shariah and Nifty indices in India are performing in a similar manner.

Sign in / Sign up

Export Citation Format

Share Document