“Leapfrogging” the Variance: The Financial Management of Extreme‐Event Risk

Abstract

Events surrounding September 11, 2001, have motivated increasing interest in identifying, assessing, and managing the risk of “extreme events.” This article introduces a new mathematical framework for the risk management of extreme event risk. In the article, the author proposes criteria based on “higher” (the third and fourth) moments that dominate variance (the second moment) in explaining the economics of insurance and reinsurance. Economic and financial implications are then applied to the underwriting and investment activities of insurers and reinsurers.

Citation

POWERS, M.R. (2003), "“Leapfrogging” the Variance: The Financial Management of Extreme‐Event Risk", Journal of Risk Finance, Vol. 4 No. 4, pp. 26-39. https://doi.org/10.1108/eb022971