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Dynamic structural percolation model of loss distribution for cyber risk of small and medium-sized enterprises for tree-based LAN topology

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  • Jevtić, Petar
  • Lanchier, Nicolas

Abstract

Cyber risk due to breach can be seen as a risk of a financial loss due to breach of an institution’s IT infrastructure by unauthorized parties and exploiting, taking possession of, or disclosing data assets, thus creating financial and/or reputation damage. In this paper, as a primary contribution to the existing body of actuarial literature, we propose a structural model of aggregate loss distribution for cyber risk of small and medium-sized enterprises under the assumption of a tree-based LAN topology. Up to our knowledge, there exist no theoretical models of an aggregate loss distribution for cyber risk in this setting. To achieve our goal, we contextualize the problem in the probabilistic graph-theoretical framework using percolation models. We assume that the IT network topology is represented by a random graph allowing for heterogeneous loss topology and providing instructive numerical examples.

Suggested Citation

  • Jevtić, Petar & Lanchier, Nicolas, 2020. "Dynamic structural percolation model of loss distribution for cyber risk of small and medium-sized enterprises for tree-based LAN topology," Insurance: Mathematics and Economics, Elsevier, vol. 91(C), pages 209-223.
    • Handle: RePEc:eee:insuma:v:91:y:2020:i:c:p:209-223
    DOI: 10.1016/j.insmatheco.2020.02.005
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    References listed on IDEAS

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    9. Eling, Martin & Loperfido, Nicola, 2017. "Data breaches: Goodness of fit, pricing, and risk measurement," Insurance: Mathematics and Economics, Elsevier, vol. 75(C), pages 126-136.
    10. Spencer Wheatley & Thomas Maillart & Didier Sornette, 2016. "The extreme risk of personal data breaches and the erosion of privacy," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 89(1), pages 1-12, January.
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    Cited by:

    1. Zhang, Xiaoyu & Xu, Maochao & Su, Jianxi & Zhao, Peng, 2023. "Structural models for fog computing based internet of things architectures with insurance and risk management applications," European Journal of Operational Research, Elsevier, vol. 305(3), pages 1273-1291.
    2. Petar Jevtic & Nicolas Lanchier, 2021. "Probabilistic Framework For Loss Distribution Of Smart Contract Risk," Papers 2101.08964, arXiv.org.
    3. Daniel Zängerle & Dirk Schiereck, 2023. "Modelling and predicting enterprise-level cyber risks in the context of sparse data availability," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(2), pages 434-462, April.
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    5. Zängerle, Daniel & Schiereck, Dirk, 2022. "Modelling and predicting enterprise‑level cyber risks in the context of sparse data availability," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 136276, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    6. Na Ren & Xin Zhang, 2024. "A novel k-generation propagation model for cyber risk and its application to cyber insurance," Papers 2408.14151, arXiv.org.

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