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Heterogeneity in cyber loss severity and its impact on cyber risk measurement

Author

Listed:
  • Martin Eling

    (University of St. Gallen)

  • Kwangmin Jung

    (POSTECH (Pohang University of Science and Technology))

Abstract

We use the world’s largest publicly available dataset of operational risk to model cyber losses and show that the Tweedie model best fits the cyber loss severity in the financial industry. Three key determinants of loss severity are firm size, contagion risk and legal liability. We also measure the size of risk based on the estimation results and show a large degree of heterogeneity across financial firms. The results are particularly relevant with respect to the recent discussion on simplifying operational risk capital requirements and reiterate the importance of considering individual firm characteristics when modelling operational losses.

Suggested Citation

  • Martin Eling & Kwangmin Jung, 2022. "Heterogeneity in cyber loss severity and its impact on cyber risk measurement," Risk Management, Palgrave Macmillan, vol. 24(4), pages 273-297, December.
    • Handle: RePEc:pal:risman:v:24:y:2022:i:4:d:10.1057_s41283-022-00095-w
    DOI: 10.1057/s41283-022-00095-w
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    References listed on IDEAS

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    More about this item

    Keywords

    Operational risk; Cyber risk; Financial services industry; Tweedie model;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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