Climate Change and Risk Management: Challenges for Insurance, Adaptation, and Loss Estimation

Adapting to climate change will not only require responding to the physical effects of global warming, but will also require adapting the way we conceptualize, measure, and manage risks. Climate change is creating new risks, altering the risks we already face, and also, importantly, impacting the interdependencies between these risks. In this paper we focus on three particular phenomena of climate related risks that will require a change in our thinking about risk management: global micro-correlations, fat tails, and tail dependence. Consideration of these phenomena will be particularly important for natural disaster insurance, as they call into question traditional methods of securitization and diversification.tail dependence, micro-correlations, fat tails, damage distributions, climate change

Socio-economic issues in future generation internet

Socio-Economic Issues in Future Generation Interne

WARNING: Physics Envy May Be Hazardous To Your Wealth!

The quantitative aspirations of economists and financial analysts have for many years been based on the belief that it should be possible to build models of economic systems - and financial markets in particular - that are as predictive as those in physics. While this perspective has led to a number of important breakthroughs in economics, "physics envy" has also created a false sense of mathematical precision in some cases. We speculate on the origins of physics envy, and then describe an alternate perspective of economic behavior based on a new taxonomy of uncertainty. We illustrate the relevance of this taxonomy with two concrete examples: the classical harmonic oscillator with some new twists that make physics look more like economics, and a quantitative equity market-neutral strategy. We conclude by offering a new interpretation of tail events, proposing an "uncertainty checklist" with which our taxonomy can be implemented, and considering the role that quants played in the current financial crisis.Comment: v3 adds 2 reference

Resilience in Transportation Networks

The functionality of transportation networks is greatly challenged by risk factors such as increasing climate-related hazards, rising population exposure, and greater city vulnerability. Inevitably, the transportation network cannot withstand the impact of an overwhelming disaster, which results in rapid declines in the performance of road net-work. As a next step, the authorities need to restore the performance of the road net-work to an acceptable state as soon as possible and rebalance the conflict between the capacity of the road network and travel demand. Resilience is defined as the process of system performance degradation followed by recovery. To improve the transportation network resilience and maintain regular traffic, it is crucial to identify which factors are related to the resilience and investigate how these factors impact resilience. In this thesis, four factors, i.e., road networks, evacuees, disruption types and au-thorities, are identified to analyze resilience mechanisms. Firstly, the change in vehicle speed during a disaster is used as a measure of resilience, and we analyze the quantita-tive relationship between resilience and the structural characteristics and properties of the road network in multiple disruptions in multiple cities. The results show that the connectivity of the road network, the predictability of disruption, and the population density affect the resilience of the road network in different ways. Secondly, as the road connectivity plays a crucial role during the evacuation pe-riod and considering more frequent and extensive bushfires, we explore a practical and challenging problem: are bushfire fatalities related to road network characteristics? Con-nectivity index (CI), a composite metric that takes into account redundancy, connectivi-ty, and population exposure is designed. The statistical analysis of real-world data sug-gests that CI is significantly negatively correlated with historical bushfire fatalities. This parsimonious and simple graph-theoretic measure can provide planners a useful metric to reduce vulnerability and increase resilience among areas that are prone to bushfires. Finally, a modelling framework for optimizing road network pre-disaster invest-ment strategy under different disaster damage levels is proposed. A bi-level multi-objective optimization model is formulated, in which the upper-level aims to maximize the capacity-based functionality and robustness of the road network, and the lower-level is the user equilibrium problem. To efficiently solve the model, the Shapley value is used to select candidate edges and obtain a near-optimal project order. For more reality, the heterogeneity of road segments to hazards and the correlation of road segments in dif-ferent hazard phases are considered. Realistic speed data is used to explore the depend-ency between different disaster states with copula functions. The numerical results illus-trate that the investment strategy is significantly influenced by the road edge character-istics and the level of disaster damage. Critical sections that can significantly improve the overall functionality of the network are identified. Overall, the core contribution of this thesis is to provide insights into the evalua-tion and analysis of resilience in transportation networks, as well as develop modelling frameworks to promote resilience. The results of this work can provide a theoretical ba-sis for road network design, pre-disaster investment and post-disaster emergency rescue

Development of an Agriculture Drought Risk model for the Iberian Peninsula

Among climate extremes, droughts are a major source of risk to agriculture and food security, which are expected to be increasingly affected considering the tendency towards a warmer climate. Within the context of climate change, the Iberian Peninsula (IP) is one of the regions recurrently highlighted as one of the areas expected to be particularly affected by drought episodes, due to the strong variations in the precipitation regime that make the region prone to drought events. In this way, this dissertation aimed the development of an agricultural drought risk model to contribute to more resilient systems in the IP. The skills of several drought indicators (SPEI, VCI, TCI and VHI) in predicting wheat and barley yields were firstly assessed based on neural networks and multiple linear regression models. Afterwards, copula-based models were designed to assess the joint probability of crop yields and droughts for a probabilistic risk assessment. The agricultural drought risk was then defined as the conditional probability of crop-loss under drought conditions and mapped at the province level of the IP. Ultimately, the additional risk associated with the occurrence of extreme temperatures during droughts was evaluated to characterize how the interaction between dry and hot conditions may exacerbate the impacts of the individual hazards in agriculture. The results showed the good performance of drought indicators in predicting the occurrence of crop failures. In general, barley exhibits greater agricultural drought risk in comparison to wheat. Overall, the risk of crop-loss increases with the severity of drought conditions, and drought-related risks increase with the interaction with extreme temperatures. Although compound dry and hot conditions lead to the larger damages in crop yield than the individual drought- or heat-stress, drought is still the dominant factor. From an operational point of view, this research intends contributing to the agricultural decision-making

The Drought Risk Analysis, Forecasting, and Assessment under Climate Change

This Special Issue is a platform to fill the gaps in drought risk analysis with field experience and expertise. It covers (1) robust index development for effective drought monitoring; (2) risk analysis framework development and early warning systems; (3) impact investigations on hydrological and agricultural sectors; (4) environmental change impact analyses. The articles in the Special Issue cover a wide geographic range, across China, Taiwan, Korea, and the Indo-China peninsula, which covers many contrasting climate conditions. Hence, the results have global implications: the data, analysis/modeling, methodologies, and conclusions lay a solid foundation for enhancing our scientific knowledge of drought mechanisms and relationships to various environmental conditions