A comprehensive model for cyber risk based on marked point processes and its application to insurance

• Published in: European actuarial journal Vol. 12; no. 1; pp. 33 - 85
• Main Authors: Zeller, Gabriela, Scherer, Matthias
• Format: Journal Article
• Language: English
• Published: Berlin, Heidelberg Springer 01.06.2022; Springer Berlin Heidelberg; Springer Nature B.V
• Subjects: Accumulation risk; Actuarial science; Applications of Mathematics; Binomial distribution; Cyber insurance; Cyber risk; Data integrity; Economics; Emerging risks; Financial Services; Game Theory; Liability insurance; Literature reviews; Losses; Marked point processes; Mathematics; Mathematics and Statistics; Network security; Original Research Paper; Quantitative Finance; Risk management; Social and Behav. Sciences; Stochastic models; United States > US; Cyber insurance; Accumulation risk; Cyber risk; Marked point processes; Emerging risks
• ISSN: 2190-9741; 2190-9733; 2190-9741
• DOI: 10.1007/s13385-021-00290-1

After scrutinizing technical, legal, financial, and actuarial aspects of cyber risk, a new approach for modelling cyber risk using marked point processes is proposed. Key covariates, required to model frequency and severity of cyber claims, are identified. The presented framework explicitly takes into account incidents from malicious untargeted and targeted attacks as well as accidents and failures. The resulting model is able to include the dynamic nature of cyber risk, while capturing accumulation risk in a realistic way. The model is studied with respect to its statistical properties and applied to the pricing of cyber insurance and risk measurement. The results are illustrated in a simulation study.