English

Climate-Conditioned Cascade Modeling for Multi-Peril Reinsurance: Analysis and Controlled Numerical Applications

Risk Management 2026-08-10 v1

Abstract

Climate perils are linked through event ordering and state-dependent propagation, features not fully captured by joint loss distributions alone. This paper develops a Cascading Climate Risk Network (CCRN) for multi-peril reinsurance that separates calendar-scale climate conditioning from within-event propagation on a directed acyclic graph (DAG). The model combines complementary-log-log triggering hazards with bounded severity activation, mapping physical states to insured losses via a capacity-bounded demand-surge transformation. For fixed shocks, the event-scale cascade reaches a unique finite-step closure. Monotone comparative statics provide a pathwise upper-corner loss bound over rectangular stress sets, yielding a transparent contract-level stress-testing guarantee under common aleatory inputs. Comprehensive numerical experiments, including copula and Bayesian-network benchmarks, sensitivity analyses, and uncertainty propagation, demonstrate that while central layer prices remain robust across matched-marginal dependence structures, far-tail and high-layer behaviors differ materially. Directional propagation, annual event frequency, and dependence strength emerge as the principal risk drivers. The study provides a controlled synthetic verification of the proposed architecture.

Keywords

Cite

@article{arxiv.2608.09456,
  title  = {Climate-Conditioned Cascade Modeling for Multi-Peril Reinsurance: Analysis and Controlled Numerical Applications},
  author = {N. Karimi and E. Salavati and F. Shokrollahi},
  journal= {arXiv preprint arXiv:2608.09456},
  year   = {2026}
}

Comments

35 pages, 11 figures