Extreme cyber risks and the non-diversification trap

Item Type Conference or Workshop Item (Paper)
Abstract We illustrate the existence of a “nondiversification trap” (Ibragimov, Jaffee, and Walden,2009) when portfolios of cyber risk are constructed. Portfolio diversification thus does not decrease risk, but rather increases risk. Our results help to explain the current state of cyber insurance market, which is far behind the expected market volume. Many insurance companies are reluctant to offer cyber insurance on a broad scale, because (among other reasons) they anticipate the unfavorable diversification properties. We also discuss potential ways to overcome the nondiversification trap.
Authors Schnell, Werner
Language English
Keywords Diversification Trap, Extreme Value Theory, Cyber Risk, Risk Management,Loss Distribution Approach
Subjects finance
HSG Classification contribution to scientific community
HSG Profile Area SOF - System-wide Risk in the Financial System
Date 6 August 2018
Event Title ARIA 2018 Annual Meeting
Event Location Chicago
Event Dates August 5-8, 2018
References http://s1.goeshow.com/aria/annual/2018/conference_program_sessions.cfm
Depositing User M.Sc. Werner Schnell
Date Deposited 06 Nov 2018 12:25
Last Modified 03 Feb 2023 01:25
URI: https://www.alexandria.unisg.ch/publications/255592

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Schnell, Werner: Extreme cyber risks and the non-diversification trap. 2018. - ARIA 2018 Annual Meeting. - Chicago.

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https://www.alexandria.unisg.ch/id/eprint/255592
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