'Frequency, Cycles, and Intensity in U

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					         “Frequency, Cycles, and Intensity in U.S. Earthquake Events, 1849-1996”
                                      August 1997

                                 Steven L. Green, Baylor University
                                 J. Allan Seward, Baylor University

                                               ABSTRACT

We examine the history of the frequency and intensity of earthquake loss events in the United States since
1849. We fit a two-state Markov model to count data on 5 time series on earthquake events of varying
intensities. We find evidence that the U.S. does alternate between periods of high seismic activity and
periods of low seismic activity. Our techniques allow us to extract an estimate of the probability that the
U.S. is in the high-seismic-activity state in any particular year. This probability is a parsimonious way of
capturing the information about seismic activity in the 5 earthquake event series. When we apply frequency
domain methods to the probability estimate, we find that seismic activity is dominated by cycles of 3.5 years
and by cycles of 15 years or more. This research into the pattern of occurrence of earthquakes of sufficient
magnitude to cause insured losses has implications for individual insurance purchases under adaptive
expectations, and for the pricing of reinsurance contracts and new financial contracts related to catastrophic
events.

CONFERENCE PRESENTATIONS: An earlier version of this paper was presented at the Southern Risk
and Insurance Association conference on Hilton Head Island in November 1996. This draft was presented
in August 1997 at the American Risk and Insurance Association Conference in San Diego.

				
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