105 Pages Posted: 5 Sep 2012 Last revised: 21 Jan 2014
Date Written: September 5, 2012
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.
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
Suggested Citation: Suggested Citation
Chen, James Ming, Postmodern Disaster Theory (September 5, 2012). MSU Legal Studies Research Paper No. 11-17. Available at SSRN: https://ssrn.com/abstract=2141591 or http://dx.doi.org/10.2139/ssrn.2141591