City Research Online

Abstract

We develop a decision-support framework for cyber risk mitigation policies from the perspective of an organisation with limited resources for security controls, upgrades, and cyber insurance. To balance the conflicting optimisation objectives of the organisation and the insurer, we propose a bi-level model that endogenously derives optimal strategies for both parties, accounting for key uncertainties underlying a cyber attack. We find that cyber insurance coverage increases with premium size, though this depends on the effectiveness of system upgrades. Notably, the latter has an ambiguous impact on the equilibrium budget allocation strategy and insurance contract design, meaning that higher effectiveness does not necessarily mandate an analogous capital allocation.

Publication Type:	Monograph (Working Paper)
Additional Information:	Paper submitted to Annals of Actuarial Science.
Publisher Keywords:	Cyber security, bi-level optimisation, insurance
Subjects:	H Social Sciences > HG Finance Q Science > QA Mathematics > QA75 Electronic computers. Computer science
Departments:	Bayes Business School Bayes Business School > Actuarial Science & Insurance
SWORD Depositor:	Symplectic Administrator

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