Discounting, catastrophic risks management and vulnerability modeling

Discounting, catastrophic risks management and vulnerability modeling

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Article ID: iaor20102288
Volume: 79
Issue: 4
Start Page Number: 917
End Page Number: 924
Publication Date: Dec 2008
Journal: Mathematics and Computers in Simulation
Authors: , , , , ,
Abstract:

Traditional discounting dramatically affects the outcome of catastrophic risk management and spatio-temporal vulnerability modeling. The misperception of discount rates produces inadequate evaluations of risk management strategies, which may provoke catastrophes and significantly contribute to the increasing vulnerability of our society. This paper analyses the implication of potential catastrophic events on the choice of discounting. In particular, it shows the necessity of using proposed equivalent undiscounted stopping time criterion and Monte Carlo based stochastic optimization procedures.

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