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Time series analysis and probabilistic model of the financial costs of major disasters in the USA

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  • Charchit Shukla

    (Iowa State University)

  • Cameron A. MacKenzie

    (Iowa State University)

Abstract

The number of billion-dollar natural disasters in the USA has increased from 28 in 1980–1989 to 105 in 2010–2018. During these same time periods, the total cost of these natural disasters increased from $172 billion to $755 billion. Generating probabilistic assessments of the cost of these billion-dollar natural disasters can provide insight into the financial risks posed by these disasters while accounting for the uncertainty and variation in these disasters. This article simulates the frequency and cost of billion-dollar disasters and analyses the financial risk of these disasters in the USA. We use a probabilistic approach to quantify and create five models. These models are created by fitting probability distributions to the historical cost of billion-dollar disasters. The model that fits the data best and accounts for the recent increase in the cost and frequency of billion-dollar disasters forecasts that the expected annual cost of these disasters is $91 billion, with about a 1% chance that the annual costs could exceed $500 billion. Simulating the costs and frequency of natural disasters provides an understanding of the risks of different types of disasters in the USA.

Suggested Citation

  • Charchit Shukla & Cameron A. MacKenzie, 2024. "Time series analysis and probabilistic model of the financial costs of major disasters in the USA," Environment Systems and Decisions, Springer, vol. 44(1), pages 30-44, March.
    • Handle: RePEc:spr:envsyd:v:44:y:2024:i:1:d:10.1007_s10669-023-09912-3
    DOI: 10.1007/s10669-023-09912-3
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