The changing landscape of cyber risk: An empirical analysis of frequency, severity and tail dynamics
Type
conference paper
Date Issued
2023-12-18
Author(s)
Abstract
Cyber risk has become a major theme in information security research. Yet
relatively little is known about its statistical features and how it evolves over time.
This paper utilizes three cyber databases to examine the empirical properties of
cyber risk. We first deal with report delays with an extended two-stage model and
then identify structural changes in the frequency and severity of different cyber risk
categories. We document that for malicious events the frequency has grown
exponentially in the past two decades and the financial loss distribution has shifted
toward greater severity since 2018. The increasing trends for other categories are
slower in frequency and less clear in severity. We also explore the tail dynamics and
find that the heavy-tailedness of cyber risk is persistent. Finally, we discuss the
implications of the documented empirical features and show that they lead to lower
insurance demand and potentially higher risk levels for firms.
relatively little is known about its statistical features and how it evolves over time.
This paper utilizes three cyber databases to examine the empirical properties of
cyber risk. We first deal with report delays with an extended two-stage model and
then identify structural changes in the frequency and severity of different cyber risk
categories. We document that for malicious events the frequency has grown
exponentially in the past two decades and the financial loss distribution has shifted
toward greater severity since 2018. The increasing trends for other categories are
slower in frequency and less clear in severity. We also explore the tail dynamics and
find that the heavy-tailedness of cyber risk is persistent. Finally, we discuss the
implications of the documented empirical features and show that they lead to lower
insurance demand and potentially higher risk levels for firms.
Event Title
16th International Conference of the ERCIM WG on Computational and Methodological Statistics, 17th International Conference on Computational and Financial Econometrics
Event Location
Berlin, Germany
Event Date
December 16-18, 2023