Markets to Hedge Information Security Risks Pankaj Pandey and - - PowerPoint PPT Presentation

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Markets to Hedge Information Security Risks Pankaj Pandey and - - PowerPoint PPT Presentation

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Using Prediction Markets to Hedge Information Security Risks Pankaj Pandey and Einar Arthur Snekkenes Email: pankaj.pandey2@hig.no einar.snekkenes@hig.no Norwegian Information Security Lab (NISLab) Gjvik University College, Norway

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Using Prediction Markets to Hedge Information Security Risks

Pankaj Pandey and Einar Arthur Snekkenes Email: pankaj.pandey2@hig.no einar.snekkenes@hig.no

Norwegian Information Security Lab (NISLab) Gjøvik University College, Norway www.nislab.no www.hig.no

Wednesday, 15 October 2014

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Wh What at is is a a Pr Prediction ediction Ma Market? rket?

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 Decision Markets, Information Markets,

Virtual Stock Markets, Speculative Markets

 Markets that are designed and operated

with the primary purpose of mining and aggregation

  • f

information which is scattered among traders. Subsequently this information is used in the form of market values to predict the specific future events[1]

Using Prediction Markets to Hedge Information Security Risks

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Pu Public lic Pr Predicti ediction

  • n Ma

Markets rkets

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Using Prediction Markets to Hedge Information Security Risks

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Pr Private ivate Pred Predict iction ion Ma Markets rkets

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Using Prediction Markets to Hedge Information Security Risks

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Related elated Exa xamples mples

FutureMAP Saddam Security

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Using Prediction Markets to Hedge Information Security Risks

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Fut utureMAP ureMAP Pr Project

  • ject
  • Future Markets Applied to Prediction (FutureMAP)

project started in 2001 by Defense Advanced Research Project Agency (DARPA), USA [2]

  • To be used as a ‘Electronic Market based Decision

Support’

  • To improve the existing approaches of collecting

intelligence information

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Using Prediction Markets to Hedge Information Security Risks

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Sad addam dam Sec ecurity urity Stu tudy dy

  • To study if decision makers can be informed in real

time by means of existing financial, energy and prediction markets [3]

  • ‘Saddam Security Contract’ @ Tradesports.com paid

if and only if Saddam Hussein was out of office by 30/Jun/2003

  • Relationship between Equity, Spot and Future

Prices of Oil and ‘Saddam Security’

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Using Prediction Markets to Hedge Information Security Risks

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Sad addam dam Sec ecurity urity Stu tudy dy

  • High Price for Saddam Security => High Chance of

War

  • High Price of Oil => Medium Impact on Supply
  • Negative correlation between S&P 500 future price

for one year ahead => Negative Impact on global economy

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Using Prediction Markets to Hedge Information Security Risks

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Ca Case se fo for r IS ISPM PM

Risk Mitigation Instrument Low Coverage High Premiums Exclusions Systematic Risk Cyber Insurance

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Using Prediction Markets to Hedge Information Security Risks

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Exp xpected ected benefits enefits of

  • f IS

ISPM PM

  • Capital Makets have less or no moral hazard
  • Participants do not need to prove their claim
  • No risk of adverse selection
  • Transparent and fair prices
  • Lower transaction cost due to economics of volume
  • Greater coverage and easily accessible
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Using Prediction Markets to Hedge Information Security Risks

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Des esign ign Is Issue sues

Contracts

Market Mechanism Participants & Incentives

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Using Prediction Markets to Hedge Information Security Risks

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Des esign ign Is Issue sues

Contracts

Derivatives Insurance Linked Derivatives

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Using Prediction Markets to Hedge Information Security Risks

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Des esign ign Is Issue sues

Market Mechanism

Continuous Double Auction Model Continuous Double Auction with Market Maker Pari-Mutuel Market Model Market Scoring Rule Dynamic Pari-Mutuel Market Model

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Using Prediction Markets to Hedge Information Security Risks

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Des esign ign Is Issue sues

Participants

Hedgers Speculators

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Using Prediction Markets to Hedge Information Security Risks

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Des esign ign Is Issue sues

Incentives

Real Money Play Money Digital Currency Reputation Score

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Using Prediction Markets to Hedge Information Security Risks

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Ri Risk sk As Asse sessm ssment ent of

  • f IS

ISPM PM

Issue of Acceptance Risk of Failure Standards on Decision Criteria Market Bubbles Market Manipulation

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Using Prediction Markets to Hedge Information Security Risks

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Ri Risk sk As Asse sessm ssment ent of

  • f IS

ISPM PM

Issue of Acceptance

  • People may have reservations regarding idea,

financial instruments and trading

  • Foreign currency swaps were not developed until

1980s

  • Futures market on stock price indices did not

exist until 1982

  • Weather derivative traded for the first time in

1997, now accounts for billions of dollars

  • Carbon emissions trading market had a slow

start

  • Macro markets were never developed to allow

actual trading

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Using Prediction Markets to Hedge Information Security Risks

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Ri Risk sk As Asse sessm ssment ent of

  • f IS

ISPM PM

Fear of Failure

  • Long time to acceptance
  • Prone to high risk of failure
  • Consumer Price Index (CPI) Futures Market
  • estd. In 1985 in USA and failed in 1986
  • CPI Market succeed in Brazil
  • Point is not that such markets cannot succeed

but they take time to get accepted by others

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Using Prediction Markets to Hedge Information Security Risks

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Ri Risk sk As Asse sessm ssment ent of

  • f IS

ISPM PM

Decision Criteria

  • Lack of standards on what constitutes an

information security attack

  • Index linked triggers can be developed but

we do not have an index linked to information security

  • Homogeneity

in decision criteria

  • n

settlement of contracts

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Using Prediction Markets to Hedge Information Security Risks

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Ri Risk sk As Asse sessm ssment ent of

  • f IS

ISPM PM

Market Bubbles

  • Bubbles

in Information security market cannot be ruled out

  • Eventual burst of the bubble will lead to

sudden market crash

  • Market prices will not reflect the ‘true’ prices
  • Difficult to differentiate between a bubble

price and a true price

  • Bubbles will inhibit the whole purpose of risk

hedging

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Using Prediction Markets to Hedge Information Security Risks

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Ri Risk sk As Asse sessm ssment ent of

  • f IS

ISPM PM

Market Manipulation

Market Manipulation Speculative Bubbles

Fair Market Price

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Using Prediction Markets to Hedge Information Security Risks

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Co Conclusi nclusion

  • n
  • Outlined the use of prediction market to hedge

information security risks

  • Benefits of prediction market for trading of

financial and insurance-linked instruments are larger than the challenges

  • Substantial proportion (if not, all) of the

information security risk can be hedged

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Using Prediction Markets to Hedge Information Security Risks

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Fu Futu ture re Work Work

  • Architecture (Design issues) of information

security prediction market

  • Designing different types of trading contracts
  • Implementation of information security

prediction market

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Using Prediction Markets to Hedge Information Security Risks

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Re Referen ferences ces

1)

  • J. E. Berg and T. A. Rietz, Prediction markets as decision support systems,

Information Systems Frontiers, vol. 5, no. 1, pp. 79–93, Jan. 2003.

2)

  • R. Hanson, Designing real terrorism futures, Public Choice, vol. 128, no. 1, pp. 257–

274, 2006.

3)

  • J. Wolfers and E. Zitzewitz, Using markets to inform policy: The case of the iraq war,

NBER Working Paper, 2006.

4)

http://www.bloomberg.com/news/2014-08-29/next-u-s-bank-bailout-could-come- after-a-cyber-terror-attack.html

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Using Prediction Markets to Hedge Information Security Risks