Cyber bonds and their pricing models

TL;DR

This paper introduces a comprehensive framework for cyber bonds, modeling their pricing and characteristics based on cyber risk data, aiming to provide insurance solutions for cyber attack losses.

Contribution

It presents a novel general framework for cyber bonds, including methods to estimate loss distributions and simulate bond pricing using real cyber event data.

Findings

Cyber bond prices can be effectively simulated using publicly available cyber event data.

Two approaches to coupon calculation are proposed and analyzed.

The framework enables assessment of cyber bond risk and return characteristics.

Abstract

Motivated by the developments in cyber risk treatment in the finance industry, we propose a general framework of cyber bond, whose main purpose is to insure (compensate) losses of a cyber attack. Based on a database of publicly available cyber events, we determine cyber loss distribution parameters and use them to numerically simulate cyber bond price, yield, and other characteristics. We also consider two possible approaches to cyber bond coupon calculation.