Abstract

http://ssrn.com/abstract=2141591
 


 



Postmodern Disaster Theory


James Ming Chen


Michigan State University - College of Law

September 5, 2012

MSU Legal Studies Research Paper No. 11-17

Abstract:     
Legal preparedness for disaster consists of implementing the optimal portfolio of rules for managing catastrophic risks. This article extends the simpler model of modern disaster theory, http://ssrn.com/abstract=1910669, into a more ambitious model of postmodern disaster theory. A complete account of disaster law and policy based on an extended analogy to quantitative finance must address all aspects of that discipline, from the beautiful symmetries of modern portfolio theory to the disturbing behavioral insights and the vastly expanded mathematical arsenal of the postmodern critique.

Postmodern disaster theory represents a comprehensive account of catastrophic risk management. It organizes its postmodern agenda for legal management of risk and uncertainty according to higher statistical moments. Skewness has inspired alternative ways to measure risk-adjusted performance. To illustrate how the problem of fat tails and excess kurtosis confounds the measurement and management of risk, this article conducts parametric value-at-risk (VaR) analysis with the logistic distribution, a leptokurtic analog of the Gaussian distribution. Incomplete statistical models of risk dangerously blind the law to certain sources of financial or environmental peril.

Risk management through quantitatively informed legal tools is the unifying principle that harmonizes disaster policy in all domains, from the regulation of systemically important financial institutions to the prevention and mitigation of natural disasters. Postmodern disaster theory exploits the full range of sophisticated methods analogous to those used in quantitative finance. Comprehensive quantitative understanding promises to place disaster law on the efficient frontier of legal preparedness.

Number of Pages in PDF File: 105

Keywords: disasters, disaster law, finance, quantitative finance, portfolio theory, insurance, catastrophe bonds, risk-adjusted performance, Sharpe, Treynor, Sortino, omega, alpha, beta, skewness, kurtosis, leptokurtosis, Gaussian, logistic, VaR, value-at-risk

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Date posted: September 5, 2012 ; Last revised: January 21, 2014

Suggested Citation

Chen, James Ming, Postmodern Disaster Theory (September 5, 2012). MSU Legal Studies Research Paper No. 11-17. Available at SSRN: http://ssrn.com/abstract=2141591 or http://dx.doi.org/10.2139/ssrn.2141591

Contact Information

James Ming Chen (Contact Author)
Michigan State University - College of Law ( email )
318 Law College Building
East Lansing, MI 48824-1300
United States
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