Quantifying Catastrophic and Climate Impacted Hazards Based on Local Expert Opinions

28 Pages Posted: 11 Nov 2014

See all articles by Tim Keighley

Tim Keighley

Macquarie University, Faculty of Business and Economics

Thomas Longden

Macquarie University, Faculty of Business and Economics; CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici

Supriya Mathew

Charles Darwin University, Northern Institute

Stefan Trück

Macquarie University Sydney - Department of Applied Finance and Actuarial Studies; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR); Macquarie University, Faculty of Business and Economics

Date Written: November 11, 2014

Abstract

The analysis of catastrophic and climate impacted hazards is a challenging but important exercise, as the occurrence of such events is usually associated with high damage and uncertainty. Often, at the local level, there is a lack of information on rare extreme events, such that available data is not sufficient to fit a distribution and derive parameter values for the frequency and severity distributions. This paper discusses local assessments of extreme events and examines the potential of using expert opinions in order to obtain values for the distribution parameters. In particular, we illustrate a simple approach, where a local expert is required to only specify two percentiles of the loss distribution in order to provide an estimate for the severity distribution of climate impacted hazards. In our approach, we focus on so-called heavy-tailed distributions for the severity, such as the Lognormal, Weibull and Burr XII distribution. These distributions are widely used to fit data from catastrophic events and can also represent extreme losses or the so-called tail of the distribution. An illustration of the method is provided utilising an example that quantifies the risk of bushfires in a local area in Northern Sydney.

Keywords: Catastrophic Risks, Climate Impacted Hazards, Expert Opinions, Local Level Decision Making, Loss Distribution Approach

JEL Classification: Q5, Q54, Q58

Suggested Citation

Keighley, Tim and Longden, Thomas and Mathew, Supriya and Trueck, Stefan, Quantifying Catastrophic and Climate Impacted Hazards Based on Local Expert Opinions (November 11, 2014). FEEM Working Paper No. 093.2014. Available at SSRN: https://ssrn.com/abstract=2522822 or http://dx.doi.org/10.2139/ssrn.2522822

Tim Keighley

Macquarie University, Faculty of Business and Economics ( email )

Australia

Thomas Longden

Macquarie University, Faculty of Business and Economics ( email )

Australia

CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici ( email )

via Augusto Imperatore, 16
Lecce, I-73100
Italy

Supriya Mathew

Charles Darwin University, Northern Institute ( email )

Ellengowan Dr, Casuarina NT
Darwin, 0810
Australia

Stefan Trueck (Contact Author)

Macquarie University Sydney - Department of Applied Finance and Actuarial Studies ( email )

North Ryde
Sydney, New South Wales 2109
Australia
61298508483 (Phone)
61298508483 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Macquarie University, Faculty of Business and Economics ( email )

Australia

Register to save articles to
your library

Register

Paper statistics

Downloads
31
Abstract Views
504
PlumX Metrics