Optimal Cyber-Insurance Contract Design for Dynamic Risk Management and Mitigation

With the recent growing number of cyberattacks and constant lack effective defense methods, cyber risks have become ubiquitous in enterprise networks, manufacturing plants, government computer systems. Cyber insurance provides a valuable approach to transfer companies further improve security status insured. The designation cyber-insurance contracts requires considerations from both market dynamic properties risks. To capture interactions between users insurers, we present moral-hazard type principal–agent model incorporated with Markov decision processes, which are used dynamics correlations as well user’s decisions on protections. We study fully analyze case two-state two-action user under linear coverage show risk compensation, Peltzman effect, contract principle, zero-operating profit principle this case. Numerical experiments provided verify our conclusions extend cases four-state three-action threshold insurance.