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Optimal Investment in Cyber-Security under Cyber Insurance for a Multi-Branch Firm

Author

Listed:
  • Alessandro Mazzoccoli

    (Department of Civil Engineering and Computer Science, University of Rome Tor Vergata, Via del Politecnico 1, 00133 Rome, Italy
    These authors contributed equally to this work.)

  • Maurizio Naldi

    (Department of Law, Economics, Politics and Modern languages, LUMSA University, Via Marcantonio Colonna 19, 00192 Rome, Italy
    These authors contributed equally to this work.)

Abstract

Investments in security and cyber-insurance are two cyber-risk management strategies that can be employed together to optimize the overall security expense. In this paper, we provide a closed form for the optimal investment under a full set of insurance liability scenarios (full liability, limited liability, and limited liability with deductibles) when we consider a multi-branch firm with correlated vulnerability. The insurance component results to be the major expense. It ends up being the only recommended approach (i.e., setting zero investments in security) when the intrinsic vulnerability is either very low or very high. We also study the robustness of the investment choices when our knowledge of vulnerability and correlation is uncertain, concluding that the uncertainty induced on investment by either uncertain correlation or uncertain vulnerability is not significant.

Suggested Citation

  • Alessandro Mazzoccoli & Maurizio Naldi, 2021. "Optimal Investment in Cyber-Security under Cyber Insurance for a Multi-Branch Firm," Risks, MDPI, vol. 9(1), pages 1-28, January.
    • Handle: RePEc:gam:jrisks:v:9:y:2021:i:1:p:24-:d:479033
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    References listed on IDEAS

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    Cited by:

    1. Alessandro Mazzoccoli & Maurizio Naldi, 2022. "An Overview of Security Breach Probability Models," Risks, MDPI, vol. 10(11), pages 1-29, November.
    2. Alessandro Mazzoccoli, 2023. "Optimal Cyber Security Investment in a Mixed Risk Management Framework: Examining the Role of Cyber Insurance and Expenditure Analysis," Risks, MDPI, vol. 11(9), pages 1-14, August.
    3. Gabriela Zeller & Matthias Scherer, 2023. "Risk mitigation services in cyber insurance: optimal contract design and price structure," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(2), pages 502-547, April.
    4. Loretta Mastroeni & Alessandro Mazzoccoli & Maurizio Naldi, 2022. "Pricing Cat Bonds for Cloud Service Failures," JRFM, MDPI, vol. 15(10), pages 1-18, October.

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