Network Security under Heterogeneous Cyber-Risk Profiles and Contagion

Cyber risk has become a critical financial threat in today's interconnected digital economy. This paper introduces a cyber-risk management framework for networked digital systems that combines the strategic behavior of players with contagion dynamics within a security game. We address the problem of optimally allocating cybersecurity resources across a network, focusing on the heterogeneous valuations of nodes by attackers and defenders, some areas may be of high interest to the attacker, while others are prioritized by the defender. We explore how this asymmetry drives attack and defense strategies and shapes the system's overall resilience. We extend a method to determine optimal resource allocation based on simple network metrics weighted by the defender's and attacker's risk profiles. We further propose risk measures based on contagion paths and analyze how propagation dynamics influence optimal defense strategies. Numerical experiments explore risk versus cost efficient frontiers varying network topologies and risk profiles, revealing patterns of resource allocation and cyber deception effects. These findings provide actionable insights for designing resilient digital infrastructures and mitigating systemic cyber risk.