Earthquake Expenses

Example model

Description: An example of risk analysis with time-dependence and costs shifted over time.

Certain organizations (insurance companies, large companies, governments) incur expenses following earthquakes. This simplified demo model can be used to answer questions such as:

• What is the probability of more than one quake in a specific 10 year period.
• What is the probability that in my time window my costs exceed $X?

Assumptions in this model:

• Earthquakes are Poisson events with mean rate of once every 10 years.
• Damage caused by such quake is lognormally distributed, with mean $10M adn stddev of $6M.
• Cost of damage gets incurred over the period of a year from the date of the quake as equipment is replaced and buildings are repaired over time: 20% in 1st quarter after quake, 50% in 2nd quarter, 20% in 3rd quarter, 10% in 4th quarter.

Keywords: Risk analysis, cost analysis

Download: Earthquake expenses.ana