Weather, Information Security, and Markets

The most common examples of financial variables are traded assets such as stocks and bonds. Derivatives have greatly facilitated financial management, the most useful technique of which is hedging, a trading activity that aims to reduce exposure to risk. The weather derivatives market has similarities to both the potential evolution and pricing of information security derivatives. Financial markets and investors often consider a cyberattack on a corporation´s information systems to be a serious management problem and thus a threat to overall corporate value. This perception intensifies if the attack also involves direct theft of personal client data. In such a scenario, companies not only lose customer trust, but they´re also subject to costly legal actions, both from customers and government regulators. Information security derivatives can provide a solution. The first is related to investors and brand name: a company that uses appropriate financial instruments to hedge its risks is likely to have investor trust and confidence. Prediction markets could assist in determining security attacks and their related risks as well as preferences.