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Cascade sensitivity measures

Pesenti, S. M., Millossovich, P. ORCID: 0000-0001-8269-7507 and Tsanakas, A. ORCID: 0000-0003-4552-5532 (2021). Cascade sensitivity measures. Risk Analysis: an international journal, doi: 10.1111/risa.13758

Abstract

In risk analysis, sensitivity measures quantify the extent to which the probability distribution of a model output is affected by changes (stresses) in individual random input factors. For input factors that are statistically dependent, we argue that a stress on one input should also precipitate stresses in other input factors. We introduce a novel sensitivity measure, termed cascade sensitivity, defined as a derivative of a risk measure applied on the output, in the direction of an input factor. The derivative is taken after suitably transforming the random vector of inputs, thus explicitly capturing the direct impact of the stressed input factor, as well as indirect effects via other inputs. Furthermore, alternative representations of the cascade sensitivity measure are derived, allowing us to address practical issues, such as incomplete specification of the model and high computational costs. The applicability of the methodology is illustrated through the analysis of a commercially used insurance risk model.

Publication Type: Article
Additional Information: This is the peer reviewed version of the following article: Pesenti, Silvana M, Millossovich, Pietro and Tsanakas, Andreas (2021). Cascade sensitivity measures. Risk Analysis: an international journal, which has been published in final form at 10.1111/risa.13758. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions
Publisher Keywords: Sensitivity analysis; importance measures; model uncertainty; risk measures; dependence; Rosenblatt transform
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HF Commerce > HF5601 Accounting
Departments: Business School > Actuarial Science & Insurance
Date available in CRO: 14 Apr 2021 09:04
Date deposited: 14 April 2021
Date of acceptance: 7 April 2021
Date of first online publication: 2 June 2021
URI: https://openaccess.city.ac.uk/id/eprint/25904
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