International Journal of Risk Assessment and Management http://www.inderscience.com/browse/index.php?journalID=24&year=2011&vol=15&issue=5/6 Inderscience Publishers Ltd en-uk International Journal of Risk Assessment and Management 1466-8297 1741-5241 © 2011 Inderscience Publishers Ltd editor@inderscience.com https://www.inderscience.com/images/files/coverImgs/ijram_scoverijram.jpg http://www.inderscience.com/browse/index.php?journalID=24&year=2011&vol=15&issue=5/6 http://www.inderscience.com/link.php?id=43690 Governments and their regulatory agencies normally exhibit risk-neutral attitudes in their decision-making. However, for low probability-high consequence events many decision-makers tend to be risk-averse because of the catastrophic or dire nature of the hazard or event. The degree of risk averseness can be described by utility theory. This paper will infer utility functions that reflect the level of risk averseness of regulatory agencies when adopting new safety measures such as investing $75 billion per year of the homeland security budget to avert terrorist attacks in the USA. The utility analysis considers threat probability, risk reduction caused by regulatory action, cost of regulatory action, and losses. The expected utilities using an identical risk-averse utility function for: 1) no enhanced security expenditure; 2) regulatory action associated with $75 billion of enhanced homeland security expenditure are compared and made equal to each other by modifying the risk-averse utility function. This means that both policy options are equally preferable so if the decision-maker is more risk-averse than suggested by the risk-averse utility function then regulatory action is preferable. It will be shown that the level of risk averseness needed to justify current expenditures for homeland security is considerable. Homeland security: a case study in risk aversion for public decision-making
Mark G. Stewart; Bruce R. Ellingwood; John Mueller
International Journal of Risk Assessment and Management, Vol. 15, No. 5/6 (2011) pp. 367 - 386
Governments and their regulatory agencies normally exhibit risk-neutral attitudes in their decision-making. However, for low probability-high consequence events many decision-makers tend to be risk-averse because of the catastrophic or dire nature of the hazard or event. The degree of risk averseness can be described by utility theory. This paper will infer utility functions that reflect the level of risk averseness of regulatory agencies when adopting new safety measures such as investing $75 billion per year of the homeland security budget to avert terrorist attacks in the USA. The utility analysis considers threat probability, risk reduction caused by regulatory action, cost of regulatory action, and losses. The expected utilities using an identical risk-averse utility function for: 1) no enhanced security expenditure; 2) regulatory action associated with $75 billion of enhanced homeland security expenditure are compared and made equal to each other by modifying the risk-averse utility function. This means that both policy options are equally preferable so if the decision-maker is more risk-averse than suggested by the risk-averse utility function then regulatory action is preferable. It will be shown that the level of risk averseness needed to justify current expenditures for homeland security is considerable.

]]> 10.1504/IJRAM.2011.043690 International Journal of Risk Assessment and Management, Vol. 15, No. 5/6 (2011) pp. 367 - 386 Mark G. Stewart; Bruce R. Ellingwood; John Mueller Centre for Infrastructure Performance and Reliability, The University of Newcastle, New South Wales, 2308, Australia. ' Georgia Institute of Technology, School of Civil and Environmental Engineering, Atlanta, GA 30332-0355, USA. ' Mershon Center for International Security Studies, Department of Political Science, Ohio State University, Columbus, Ohio 43201, USA terrorism risk aversion decision-making homeland security utility theory cost-benefit analysis decision theory USA United States central government regulatory agencies government regulation risk-neutral attitudes low probability events high consequence events catastrophic events hazards risk averseness utility functions safety measures federal budgets terrorist attacks threat probability risk reduction regulatory action enhanced expenditure security expenditure policy options risk assessment risk management catastrophic risks catastrophes. 2011-11-16T23:20:50-05:00 15 5/6 367 386 2011-11-16T23:20:50-05:00 http://www.inderscience.com/link.php?id=43696 There are two strategies for safety. The first is to minimise the likelihood of failure, and the second to achieve resilience and minimise the consequences of failure should it occur. Failure is unexpected by those involved: it comes as a surprise. Surprise relates the probability of an event to the weight we give it or the degree of interest we have in it, which should be interest in whatever it is that causes failure. Many, possibly most, failures stem from the models used by engineers. To better understand models and their potential problems, a taxonomy of models is proposed, and examples of failure are given for different model types. A list of principles is given for good modelling practice which, if followed, would reduce the likelihood of failure and of being surprised. The approach has relevance to engineering education as well as practice. Tales of the unexpected
David Elms; Colin B. Brown
International Journal of Risk Assessment and Management, Vol. 15, No. 5/6 (2011) pp. 387 - 399
There are two strategies for safety. The first is to minimise the likelihood of failure, and the second to achieve resilience and minimise the consequences of failure should it occur. Failure is unexpected by those involved: it comes as a surprise. Surprise relates the probability of an event to the weight we give it or the degree of interest we have in it, which should be interest in whatever it is that causes failure. Many, possibly most, failures stem from the models used by engineers. To better understand models and their potential problems, a taxonomy of models is proposed, and examples of failure are given for different model types. A list of principles is given for good modelling practice which, if followed, would reduce the likelihood of failure and of being surprised. The approach has relevance to engineering education as well as practice.

]]> 10.1504/IJRAM.2011.043696 International Journal of Risk Assessment and Management, Vol. 15, No. 5/6 (2011) pp. 387 - 399 David Elms; Colin B. Brown Civil Engineering Department, University of Canterbury, 21 Victoria Park Road, Christchurch 8022, New Zealand. ' Department of Civil and Environmental Engineering, University of Washington, 201 More Hall, Box 352700, Seattle, WA 98195-2700, USA; School of Civil and Construction Engineering, Oregon State University, P.O. Box 1330, Corvallis, OR 97339-1330, USA safety strategies surprise philosophy engineers failure minimisation resilience unexpected events event probability engineering models model taxonomies engineering education structures risk assessment risk management catastrophic risks catastrophes. 2011-11-16T23:20:50-05:00 15 5/6 387 399 2011-11-16T23:20:50-05:00 http://www.inderscience.com/link.php?id=43698 The focus of the present paper regards the identification and treatment of critical issues in the process of societal decision making concerning management of global and catastrophic risks. Taking basis in recent works by the author, the paper in particular addresses: 1) Which are the most relevant hazards in a holistic global perspective and how may these be categorised in view of strategies for their treatment?; 2) How might robust societal decisions on risk management subject to large uncertainties be formally supported?; 3) How may available economic resources be prioritised for the purpose of sustainable and global life safety and health improvements? Finally, new results and perspectives are presented on the issue of allocation of resources for the purpose of improving global public health and a discussion on global risk governance concludes the paper. On the governance of global and catastrophic risks
M.H. Faber
International Journal of Risk Assessment and Management, Vol. 15, No. 5/6 (2011) pp. 400 - 416
The focus of the present paper regards the identification and treatment of critical issues in the process of societal decision making concerning management of global and catastrophic risks. Taking basis in recent works by the author, the paper in particular addresses: 1) Which are the most relevant hazards in a holistic global perspective and how may these be categorised in view of strategies for their treatment?; 2) How might robust societal decisions on risk management subject to large uncertainties be formally supported?; 3) How may available economic resources be prioritised for the purpose of sustainable and global life safety and health improvements? Finally, new results and perspectives are presented on the issue of allocation of resources for the purpose of improving global public health and a discussion on global risk governance concludes the paper.

]]> 10.1504/IJRAM.2011.043698 International Journal of Risk Assessment and Management, Vol. 15, No. 5/6 (2011) pp. 400 - 416 M.H. Faber DTU Department of Civil Engineering, Technical University of Denmark, Brovej, Bygning 118, DK-2800, Denmark global risks decision-making sustainability sustainable development risk governance critical issues societal decisions hazards holistic perspectives global perspectives hazard categorisation uncertainty economic resources resource prioritisation safety health life improvements resource allocation public health risk assessment risk management catastrophic risks catastrophes. 2011-11-16T23:20:50-05:00 15 5/6 400 416 2011-11-16T23:20:50-05:00 http://www.inderscience.com/link.php?id=43697 Assistance needs after large catastrophes often exceed available resources. Effective resource allocation is paramount to support emergency management and recovery, particularly within infrastructure networks. However, network optimisation problems exhibit high computational complexity, becoming intractable at a global scale. This paper successfully handles complexity through a systems approach, which uses a description of networks at different levels of abstraction through a hierarchical structure. The community structure of networks is unravelled via clustering algorithms that successively partition them hierarchically. A resource allocation problem is formulated adding information from the hierarchy, leading to a reduced solution space. Besides computational improvement, decisions are enhanced due to the topological information provided by the hierarchy-based optimisation. An example regarding the allocation of support centres aims to maximise assistance, at minimum cost, in case of emergency events. Solutions that respond to the network topology are obtained in a fraction of the time required by standard formulations. Optimisation-based decision-making for complex networks in disastrous events
Camilo Gómez; Jessica Buriticá; Mauricio Sánchez-Silva; Leonardo Dueñas-Osorio
International Journal of Risk Assessment and Management, Vol. 15, No. 5/6 (2011) pp. 417 - 436
Assistance needs after large catastrophes often exceed available resources. Effective resource allocation is paramount to support emergency management and recovery, particularly within infrastructure networks. However, network optimisation problems exhibit high computational complexity, becoming intractable at a global scale. This paper successfully handles complexity through a systems approach, which uses a description of networks at different levels of abstraction through a hierarchical structure. The community structure of networks is unravelled via clustering algorithms that successively partition them hierarchically. A resource allocation problem is formulated adding information from the hierarchy, leading to a reduced solution space. Besides computational improvement, decisions are enhanced due to the topological information provided by the hierarchy-based optimisation. An example regarding the allocation of support centres aims to maximise assistance, at minimum cost, in case of emergency events. Solutions that respond to the network topology are obtained in a fraction of the time required by standard formulations.

]]> 10.1504/IJRAM.2011.043697 International Journal of Risk Assessment and Management, Vol. 15, No. 5/6 (2011) pp. 417 - 436 Camilo Gómez; Jessica Buriticá; Mauricio Sánchez-Silva; Leonardo Dueñas-Osorio Department of Civil and Environmental Engineering, Universidad de los Andes, Cra 1st East 19A-40, Bogotá, Colombia. ' Department of Civil and Environmental Engineering, Universidad de los Andes, Cra 1st East 19A-40, Bogotá, Colombia. ' Department of Civil and Environmental Engineering, Universidad de los Andes, Cra 1st East 19A-40, Bogotá, Colombia. ' Room 212, Ryon Laboratory, Department of Civil and Environmental Engineering, Rice University, 6100 Main Street, MS-318, Houston, Texas 77005-1827, USA decision-making network optimisation clustering graph theory systems thinking hierarchical decomposition resource allocation global catastrophes infrastructure networks complex networks disastrous events disasters assistance needs available resources disaster management emergency management emergency recovery computational complexity hierarchical structures clustering algorithms reduced solution spaces computational improvement topological information support centres emergency events network topology risk assessment risk management catastrophic risks. 2011-11-16T23:20:50-05:00 15 5/6 417 436 2011-11-16T23:20:50-05:00 http://www.inderscience.com/link.php?id=43699 The paper discusses special issues that arise in engineering decision-making for engineering projects that involve a risk of potentially disastrous outcomes with widespread effects. For such projects, the costs, risks and benefits may spread beyond the jurisdiction of the relevant regulatory authorities, and the dispersion of the costs, risks and benefits may limit the accountability and liability of the decision-makers. The paper briefly reviews the conventional methods for determination of risk acceptance criteria, and it includes a critical review of 'societal risk' criteria based on FN curves for risks involving potentially disastrous outcomes. The paper discusses the limitations of conventional engineering risk acceptance criteria and identifies additional factors that must be considered for rational risk-informed decision-making whenever there is a risk of a disastrous outcome. Acceptance criteria for risks of disasters with widespread effects
Stuart G. Reid
International Journal of Risk Assessment and Management, Vol. 15, No. 5/6 (2011) pp. 437 - 452
The paper discusses special issues that arise in engineering decision-making for engineering projects that involve a risk of potentially disastrous outcomes with widespread effects. For such projects, the costs, risks and benefits may spread beyond the jurisdiction of the relevant regulatory authorities, and the dispersion of the costs, risks and benefits may limit the accountability and liability of the decision-makers. The paper briefly reviews the conventional methods for determination of risk acceptance criteria, and it includes a critical review of 'societal risk' criteria based on FN curves for risks involving potentially disastrous outcomes. The paper discusses the limitations of conventional engineering risk acceptance criteria and identifies additional factors that must be considered for rational risk-informed decision-making whenever there is a risk of a disastrous outcome.

]]> 10.1504/IJRAM.2011.043699 International Journal of Risk Assessment and Management, Vol. 15, No. 5/6 (2011) pp. 437 - 452 Stuart G. Reid School of Civil Engineering, The University of Sydney, NSW, 2006, Australia civil engineering projects decision-making risk acceptance criteria acceptable risks FN curves disasters societal risk acceptance criteria widespread effects disastrous outcomes costs benefits regulatory authorities accountability liability risk assessment risk management catastrophic risks catastrophes. 2011-11-16T23:20:50-05:00 15 5/6 437 452 2011-11-16T23:20:50-05:00 http://www.inderscience.com/link.php?id=43701 In this paper, we develop a general framework for market risk optimisation that focuses on VaR. The reason for this choice is the complexity and problems associated with risk return optimisation (non-convex and non-differential objective function). Our purpose is to obtain VaR efficient frontiers using a multi-objective genetic algorithm (GA) and to show the potential utility of the algorithm to obtain efficient portfolios when the risk measure does not allow calculating an optimal solution. Furthermore, we measure differences between VaR efficient frontiers and variance efficient frontiers in VaR-return space and we evaluate out-sample capacity of portfolios on both bullish and bearish markets. The results indicate the reliability of VaR-efficient portfolios on both bullish and bearish markets and a significant improvement over Markowitz efficient portfolios in the VaR-return space. The improvement decreases as the portfolios level of risk increases. In this particular case, efficient portfolios do not depend on the risk measure minimised. Minimising value-at-risk in a portfolio optimisation problem using a multi-objective genetic algorithm
Eva Alfaro-Cid; J. Samuel Baixauli-Soler; Matilde O. Fernandez-Blanco
International Journal of Risk Assessment and Management, Vol. 15, No. 5/6 (2011) pp. 453 - 477
In this paper, we develop a general framework for market risk optimisation that focuses on VaR. The reason for this choice is the complexity and problems associated with risk return optimisation (non-convex and non-differential objective function). Our purpose is to obtain VaR efficient frontiers using a multi-objective genetic algorithm (GA) and to show the potential utility of the algorithm to obtain efficient portfolios when the risk measure does not allow calculating an optimal solution. Furthermore, we measure differences between VaR efficient frontiers and variance efficient frontiers in VaR-return space and we evaluate out-sample capacity of portfolios on both bullish and bearish markets. The results indicate the reliability of VaR-efficient portfolios on both bullish and bearish markets and a significant improvement over Markowitz efficient portfolios in the VaR-return space. The improvement decreases as the portfolios level of risk increases. In this particular case, efficient portfolios do not depend on the risk measure minimised.

]]> 10.1504/IJRAM.2011.043701 International Journal of Risk Assessment and Management, Vol. 15, No. 5/6 (2011) pp. 453 - 477 Eva Alfaro-Cid; J. Samuel Baixauli-Soler; Matilde O. Fernandez-Blanco Instituto Tecnológico de Informática, Camino de Vera s/n, 46022 Valencia, Spain. ' Department of Management and Finance, University of Murcia, Campus de Espinardo, 30100 Murcia, Spain. ' Department of Business Finance, University of Valencia, Avda Tarongers s/n, 46022 Valencia, Spain artificial intelligence investment criteria portfolio selection genetic algorithms value at risk VaR market risk risk minimisation portfolio optimisation multi-objective algorithms complexity risk return on-convex objective functions non-differential objective functions efficient portfolios optimal solutions variance efficient frontiers bull markets bear markets Harry Markowitz stock indices United States USA Canada Japan UK United Kingdom France Germany Spain Netherlands Holland Sweden risk assessment risk management. 2011-11-16T23:20:50-05:00 15 5/6 453 477 2011-11-16T23:20:50-05:00