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The Impact of Portfolio Location Uncertainty on Probabilistic Seismic Risk Analysis

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  • Christoph Scheingraber
  • Martin A. Käser

Abstract

Probabilistic seismic risk analysis is a well‐established method in the insurance industry for modeling portfolio losses from earthquake events. In this context, precise exposure locations are often unknown. However, so far, location uncertainty has not been in the focus of a large amount of research. In this article, we propose a novel framework for treatment of location uncertainty. As a case study, a large number of synthetic portfolios resembling typical real‐world cases were created. We investigate the effect of portfolio characteristics such as value distribution, portfolio size, or proportion of risk items with unknown coordinates on the variability of loss frequency estimations. The results indicate that due to loss aggregation effects and spatial hazard variability, location uncertainty in isolation and in conjunction with ground motion uncertainty can induce significant variability to probabilistic loss results, especially for portfolios with a small number of risks. After quantifying its effect, we conclude that location uncertainty should not be neglected when assessing probabilistic seismic risk, but should be treated stochastically and the resulting variability should be visualized and interpreted carefully.

Suggested Citation

  • Christoph Scheingraber & Martin A. Käser, 2019. "The Impact of Portfolio Location Uncertainty on Probabilistic Seismic Risk Analysis," Risk Analysis, John Wiley & Sons, vol. 39(3), pages 695-712, March.
  • Handle: RePEc:wly:riskan:v:39:y:2019:i:3:p:695-712
    DOI: 10.1111/risa.13176
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    References listed on IDEAS

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    1. Solomon Tesfamariam & Rehan Sadiq & Homayoun Najjaran, 2010. "Decision Making Under Uncertainty—An Example for Seismic Risk Management," Risk Analysis, John Wiley & Sons, vol. 30(1), pages 78-94, January.
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    3. Louis Anthony (Tony) Cox, 2012. "Confronting Deep Uncertainties in Risk Analysis," Risk Analysis, John Wiley & Sons, vol. 32(10), pages 1607-1629, October.
    4. Vicki M. Bier & Shi‐Woei Lin, 2013. "On the Treatment of Uncertainty and Variability in Making Decisions About Risk," Risk Analysis, John Wiley & Sons, vol. 33(10), pages 1899-1907, October.
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    Cited by:

    1. Harsh K. Mistry & Domenico Lombardi, 2023. "A stochastic exposure model for seismic risk assessment and pricing of catastrophe bonds," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 117(1), pages 803-829, May.
    2. Jean Baptiste Nsengiyumva & Geping Luo & Egide Hakorimana & Richard Mind'je & Aboubakar Gasirabo & Valentine Mukanyandwi, 2019. "Comparative Analysis of Deterministic and Semiquantitative Approaches for Shallow Landslide Risk Modeling in Rwanda," Risk Analysis, John Wiley & Sons, vol. 39(11), pages 2576-2595, November.

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