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Discounting, catastrophic risks management and vulnerability modeling

Author

Listed:
  • Ermoliev, Y.
  • Ermolieva, T.
  • Fischer, G.
  • Makowski, M.
  • Nilsson, S.
  • Obersteiner, M.

Abstract

Traditional discounting dramatically affects the outcome of catastrophic risk management and spatio-temporal vulnerability modeling. The misperception of discount rates produces inadequate evaluations of risk management strategies, which may provoke catastrophes and significantly contribute to the increasing vulnerability of our society. This paper analyses the implication of potential catastrophic events on the choice of discounting. In particular, it shows the necessity of using proposed equivalent undiscounted stopping time criterion and Monte Carlo based stochastic optimization procedures.

Suggested Citation

  • Ermoliev, Y. & Ermolieva, T. & Fischer, G. & Makowski, M. & Nilsson, S. & Obersteiner, M., 2008. "Discounting, catastrophic risks management and vulnerability modeling," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 79(4), pages 917-924.
    • Handle: RePEc:eee:matcom:v:79:y:2008:i:4:p:917-924
    DOI: 10.1016/j.matcom.2008.02.004
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    References listed on IDEAS

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    1. Y.M. Ermoliev & T.Y. Ermolieva & G.J. MacDonald & V.I. Norkin, 2000. "Stochastic Optimization of Insurance Portfolios for Managing Exposure to Catastrophic Risks," Annals of Operations Research, Springer, vol. 99(1), pages 207-225, December.
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    9. Newell, Richard G. & Pizer, William A., 2003. "Discounting the distant future: how much do uncertain rates increase valuations?," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 52-71, July.
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    Cited by:

    1. Tatiana Ermolieva & Petr Havlik & Yuri Ermoliev & Nikolay Khabarov & Michael Obersteiner, 2021. "Robust Management of Systemic Risks and Food-Water-Energy-Environmental Security: Two-Stage Strategic-Adaptive GLOBIOM Model," Sustainability, MDPI, vol. 13(2), pages 1-16, January.

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