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Advanced Techniques for Modeling Terrorism Risk

JOHN A. MAJOR

Journal of Risk Finance

ISSN: 1526-5943

Article publication date: 1 April 2002

886

Abstract

The attack of September 11, 2001, demonstrated that terrorism is capable of inflicting damage and loss of life with a severity that is many multiples of the most extreme U.S. natural perils. This article addresses the need for a mathematical model for evaluating terrorism risk. The author compares and contrasts terrorism risk with other forms of catastrophe risk, and identifies human intelligence and intent as the distinguishing features. The author proceeds to propose that analytical techniques developed and applied within the discipline of wartime operations research (e.g., game theory, search theory), along with specialized statistical techniques, may be adopted to practically model the risk of terrorism. The article proceeds to demonstrate how even a highly simplified model can offer useful insights to the insurance industry with regard to this risk, although access to terrorism expertise is crucial.

Citation

MAJOR, J.A. (2002), "Advanced Techniques for Modeling Terrorism Risk", Journal of Risk Finance, Vol. 4 No. 1, pp. 15-24. https://doi.org/10.1108/eb022950

Publisher

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MCB UP Ltd

Copyright © 2002, MCB UP Limited

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