| Insurance is designed to build portfolios of diversifiable risks and to hedge the systematic risk in these portfolios. |
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| The CAPM links nondiversifiable risk and return for all assets and recognizes that diversifiable risk can be eliminated. |
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| This source of prepayment was diversifiable for a large pool of independent borrowers. |
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| For those risks that are assumed to be diversifiable, no adjustment has been made. |
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| Banks do face liquidity risk, but in this model it is fully diversifiable within the banking system because all spending is routed through banks. |
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| It is similar to CAPM, in that both models treat idiosyncratic risks as diversifiable and, hence, do not assign a risk premium to them. |
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| Therefore, the systematic component of portfolio risk is unavoidable and only partly diversifiable. |
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| Furthermore, our results suggest that insurance is not a diversifiable asset. |
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| The cost of insuring a diversifiable risk is a simple calculation of the discounted value of expected future damages. |
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| Idiosyncratic risk is diversified away at the portfolio level, while the systematic component of portfolio risk is manifest and only partly diversifiable. |
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| Financial theory identifies diversifiable and non-diversifiable risks. |
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