Vine Copula Modelling Dependence Among Cyber Risks: A Dangerous Regulatory Paradox

Applied Stochastic Models in Business and Industry, 2023;1–18.

18 Pages Posted: 23 Feb 2022 Last revised: 12 Mar 2024

See all articles by Maria Carannante

Maria Carannante

University of Salerno

Valeria D'Amato

University of Salerno, ITALY

Salvatore Forte

Università Telematica Giustino Fortunato

Paola Fersini

LUISS Guido Carli University

Giuseppe Melisi

affiliation not provided to SSRN

Date Written: April 26, 2023

Abstract

Dependence among different cyber risk classes is a fundamentally underexplored topic in the literature. However, disregarding the dependence structure in cyber risk management leads to inconsistent estimates of potential unintended losses. To bridge this gap, this paper adopts a regulatory perspective to develop a vine copula to capture dependence. In quantifying the solvency capital requirement gradient for cyber risk measurement according to Solvency II, a dangerous paradox emerges: an insurance company can be ranked as solvent according to Pillar 1 without adequately evaluating the operational solvency capital requirements under Pillar 2. To address the issue, an insurance policy is estimated to hedge cyber risk for the entire Italian insurance market

Keywords: Cyber Risk, Solvency Capital Requirements, Vine Copula

Suggested Citation

Carannante, Maria and D'Amato, Valeria and Forte, Salvatore and Fersini, Paola and Melisi, Giuseppe, Vine Copula Modelling Dependence Among Cyber Risks: A Dangerous Regulatory Paradox (April 26, 2023). Applied Stochastic Models in Business and Industry, 2023;1–18., Available at SSRN: https://ssrn.com/abstract=4041750 or http://dx.doi.org/10.2139/ssrn.4041750

Maria Carannante (Contact Author)

University of Salerno ( email )

Via Giovanni Paolo II, 132
Fisciano, Salerno 84084
Italy

Valeria D'Amato

University of Salerno, ITALY ( email )

Via Giovanni Paolo II, 132
Fisciano, Salerno 84084
Italy

Salvatore Forte

Università Telematica Giustino Fortunato ( email )

Benevento
Italy

Paola Fersini

LUISS Guido Carli University ( email )

viale Romania, 32
Rome, Roma 00197
Italy

Giuseppe Melisi

affiliation not provided to SSRN ( email )

No Address Available

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