Tuesday, December 18, 2018

Does Modern Portfolio Theory (MPT) apply to cyber security risks?

Many months ago, my colleague David Severski asked on Twitter how Modern Portfolio Theory (MPT) does or does not apply to quantified cyber security risk:

I replied that I would blog on this "...soon".  Ha!  Almost four months later.  Well, better late than never.

Short answerNo, MPT doesn't apply.  Read on for explanations.

NOTE: "Cyber security risk" in this article is quantified risk -- probabilistic costs of loss events or probabilistic total costs of cyber security.  Not talking about color-coded risk, categorical risk, or ordinal scores for risk.  I don't ever talk about them, if I can help it.