Actuarial Models for Cyber Risks

Cyber risks have been posing increasing concerns to both public and private sectors. While cyber insurance has naturally emerged as a market solution to mitigate cyber risk in the recent decade, its development is still in an early stage. The underdevelopment of cyber insurance market is attributable to the complex yet unknown nature of cyber risks. One major challenge is the potential dependence among cyber risks. Due to the cyber nature, the dependence could widely exist among a large scale of cyber risks regardless of locations. This poses substantial insolvency risk to insurance providers and thus discourage their participation. To make it worse, there is yet no sufficient historical data to uncover the dependence structure.

In this project, we aim to tackle this challenge from a physical simulation approach. That is, to employ cyber engineering techniques to generate reliable data and identify the root cause of dependence, and thus better capture the dependence characteristics. In a later stage, we anticipate utilizing the data and dependence characteristics to develop interactive actuarial models for pricing and risk management, with the aim to promote healthy development of the cyber insurance market and enhance the overall social welfare for all stake holders.

This project is a continuation of the IRisk project of “Modeling dependence of cyber risks and its applications”, conducted in Fall 2023. In the previous project, literature has been searched, and some preliminary models have been established and investigated. In this phrase, we shall continue to develop the models and enhance their applicability. The involvement of the previous project is not required but would be a plus.

Supervisor: Wei Wei

Graduate Supervisor: Jiajie Yang