On a Joint Frequency and Severity Loss Model Applied to Earthquake Risk
26 Pages Posted: 7 Sep 2017
Date Written: August 9, 2017
In the seismological and geophysics literature, it is suggested by numerous authors that the elapsed time between two earthquakes at a given location should be represented by either an exponential or Weibull distribution. In addition, the seismic gap hypothesis states that large waiting times could provoke larger earthquakes. This will create a statistical dependence relationship between the frequency and magnitude components of any earthquake risk model. This paper investigates the actuarial, statistical and risk management implications of these two characteristics of earthquake risk. To do so, we introduce the conditional Weibull renewal process to count the number of earthquakes over a given time period and we introduce statistical dependence between the interarrival times and the force of each earthquake. An actuarial earthquake risk model based on these elements is presented and applied to Montreal (Quebec) earthquake data.
Keywords: Earthquake Risk, Risk Management, Conditional Weibull Renewal Process, Seismic Gap Hypothesis
JEL Classification: C60, C63, C02, G22
Suggested Citation: Suggested Citation