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Stress Testing for Cyber Risks: Cyber Risk Insurance Modeling beyond Value-at-Risk (VaR): Risk, Uncertainty, and, Profit for the Cyber Era

National Association of Insurance Commissioners (NAIC) Expert Paper: Advancing Cyber Risk Insurance Underwriting Model Risk Management beyond VaR to Pre-Empt and Prevent the Forthcoming Global Cyber Insurance Crisis (June 24, 2017)

189 Pages Posted: 23 Jan 2015 Last revised: 12 Dec 2017

Yogesh Malhotra

Global Risk Management Network, LLC

Date Written: January 19, 2015

Abstract

To avert the impending global Cyber-Finance Insurance Crisis based upon large-scale commercial reliance upon quantitative models with inherent model risks, tail risks, and systemic risks in current form, this post-doctoral thesis makes the following key contributions: Develops the first known Cyber-Finance-Trustâ„¢ framework for Cyber insurance modeling; Develops the first known model risk management framework for Cyber insurance modeling; Develops first known analysis of significant and extreme model risks, tail risks, and, systemic risk; Develops multi-method empirical study of VaR and Bayesian inference for containing model risks; Analyzes Markov Chain Monte Carlo for enabling Bayesian inference to minimize model risk; Develops Cyber insurance portfolio framework to minimize model risks, tail risks, systemic risks; Develops framework for Knightian uncertainty management beyond model risk management.

Updated, revised, summary version of the thesis invited for submission by NAIC as:

National Association of Insurance Commissioners (NAIC) Expert Paper: The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Updated, revised, summary version of the thesis invited for submission by NAIC as: National Association of Insurance Commissioners Expert Paper:

Malhotra, Yogesh, Advancing Cyber Risk Insurance Underwriting Model Risk Management beyond VaR to Pre-Empt and Prevent the Forthcoming Global Cyber Insurance Crisis (June 24, 2017). Available at SSRN: https://ssrn.com/abstract=3081492. Expert Paper prepared and submitted on the request of the National Association of Insurance Commissioners on June 24, 2017.

Keywords: Quantitative Analytics, Quantitative Finance, Model Risk Management, Cyber Risk Modeling, Cyber Insurance, Trust, VaR, Value at Risk, Expected Shortfall, ETL, CVaR, Cornish-Fisher, EVT, Bayesian Inference, Markov Chain Monte Carlo, Gibbs Sampling, Metropolis-Hastings Algorithm, Knightian Uncertainty

JEL Classification: D8, D81, D82, D89, G2, G20, G22, F3, F30, F4, F40, P4, P40, C00, C1, C10, C11, C4, C40, C5, C50, C51

Suggested Citation

Malhotra, Yogesh, Stress Testing for Cyber Risks: Cyber Risk Insurance Modeling beyond Value-at-Risk (VaR): Risk, Uncertainty, and, Profit for the Cyber Era (January 19, 2015). National Association of Insurance Commissioners (NAIC) Expert Paper: Advancing Cyber Risk Insurance Underwriting Model Risk Management beyond VaR to Pre-Empt and Prevent the Forthcoming Global Cyber Insurance Crisis (June 24, 2017). Available at SSRN: https://ssrn.com/abstract=2553547

Yogesh Malhotra (Contact Author)

Global Risk Management Network, LLC ( email )

Cornell Business and Technology Park
Ithaca, NY 14852-4892
United States

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