Security Investment in Contagious Networks

Abstract

Security of the systems is normally interdependent in such a way that security risks of one part affect other parts and threats spread through the vulnerable links in the network. So, the risks of the systems can be mitigated through investments in the security of interconnecting links. This article takes an innovative look at the problem of security investment of nodes on their vulnerable links in a given contagious network as a game-theoretic model that can be applied to a variety of applications including information systems. In the proposed game model, each node computes its corresponding risk based on the value of its assets, vulnerabilities, and threats to determine the optimum level of security investments on its external links respecting its limited budget. Furthermore, direct and indirect nonlinear influences of a node's security investment on the risks of other nodes are considered. The existence and uniqueness of the game's Nash equilibrium in the proposed game are also proved. Further analysis of the model in a practical case revealed that taking advantage of the investment effects of other players, perfectly rational players (i.e., those who use the utility function of the proposed game model) make more cost-effective decisions than selfish nonrational or semirational players.

Too Connected to Fail? Evidence from a Chinese Financial Risk Spillover Network

“…Network analysis measures the dependency of firms on each other by creating a graph model that considers each fi rm as a node and treats the dependency between the ith and jth firms as a directed or an undirected edge between the ith and jth nodes (Bianchi et al, 2015;Constantin et al, 2018;Hasheminasab and Ladani, 2018; Barigozzi and Brownlees, 2019). A large amount of work in financial and industrial contexts is related to connectedness (Acemoglu et al, 2012;Babus, 2013;Wang et al, 2018).…”