The interconnectivity of cyber and physical systems and Internet of things has created ubiquitous concerns of cyber threats for enterprise system managers. It is common that the asset owners and enterprise network operators need to work with cybersecurity professionals to manage the risk by remunerating them for their efforts that are not directly observable. In this paper, we use a principal-agent framework to capture the service relationships between the two parties, i.e., the asset owner (principal) and the cyber risk manager (agent). Specifically, we consider a dynamic systemic risk management problem with asymmetric information where the principal can only observe cyber risk outcomes of the enterprise network rather than directly the efforts that the manager expends on protecting the resources. Under this information pattern, the principal aims to minimize the systemic cyber risks by designing a dynamic contract that specifies the compensation flows and the anticipated efforts of the manager by taking into account his incentives and rational behaviors. We formulate a bi-level mechanism design problem for dynamic contract design within the framework of a class of stochastic differential games. We show that the principal has rational controllability of the systemic risk by designing an incentive compatible estimator of the agent's hidden efforts. We characterize the optimal solution by reformulating the problem as a stochastic optimal control program which can be solved using dynamic programming. We further investigate a benchmark scenario with complete information and identify conditions that yield zero information rent and lead to a new certainty equivalence principle for principal-agent problems. Finally, case studies over networked systems are carried out to illustrate the theoretical results obtained.
Cybersecurity becomes a critical issue due to the large-scale deployment of smart devices and their integration with information and communication techologies (ICTs) @cite_6 @cite_54 . Hence, security risk management is an important task which has been investigated in different research fields, such as communications and infrastructures @cite_29 @cite_43 , cloud computing @cite_33 and IoT @cite_16 . The interconnections between nodes and devices make the risk management a challenge problem as the cyber risk can propogate and escalate into systemic risk @cite_35 , and hence the interdependent security risk analysis is necessary @cite_37 . Managing systemic risk is nontrivial as demonstrated in financial systems @cite_39 , critical infrastructures @cite_44 , and communication networks @cite_42 . In a network with a small number of agents, graph-theoretic methods have been widely adopted to model the strategic interactions and risk interdependencies between agents @cite_39 @cite_24 . When the number of nodes becomes large, @cite_7 has proposed a mean-field game approach where a representative agent captures the system dynamics. Different from @cite_51 @cite_17 in minimizing the static systemic risk at equilibrium, we focus in this paper on a mechanism design problem that can reduce the systemic risks by understanding the system dynamics.
@cite_35 @cite_37 @cite_33 @cite_7 @cite_54 @cite_29 @cite_42 @cite_6 @cite_39 @cite_44 @cite_43 @cite_24 @cite_16 @cite_51 @cite_17
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The massive proliferation of information and communications technologies (hardware and software) into the heart of modern critical infrastructures has given birth to a unique technological ecosystem. Despite the many advantages brought about by modern information and communications technologies, the shift from isolated environments to "systems-of-systems" integrated with massive information and communications infrastructures (e.g., the Internet) exposes critical infrastructures to significant cyber threats. Therefore, it is imperative to develop approaches for identifying and ranking assets in complex, large-scale and heterogeneous critical infrastructures. To address these challenges, this paper proposes a novel methodology for assessing the impacts of cyber attacks on critical infrastructures. The methodology is inspired by research in system dynamics and sensitivity analysis. The proposed behavioral analysis methodology computes the covariances of the observed variables before and after the execution of a specific intervention involving the control variables. Metrics are proposed for quantifying the significance of control variables and measuring the impact propagation of cyber attacks.Experiments conducted on the IEEE 14-bus and IEEE 300-bus electric grid models, and on the well-known Tennessee Eastman chemical process demonstrate the efficiency, scalability and cross-sector applicability of the proposed methodology in several attack scenarios. The advantages of the methodology over graph-theoretic and electrical centrality metric approaches are demonstrated using several test cases. Finally, a novel, stealthy cyber-physical attack is demonstrated against a simulated power grid; this attack can be used to analyze the precision of anomaly detection systems. In this paper, we consider a delegated dynamic systemic cyber risk management problem between a resource owner (principal) and a risk manager (agent). The principal can only observe cyber risk outcomes of the network rather than the efforts that the agent spends on protecting the resources. Under this asymmetric information, the principal aims to minimize the systemic cyber risks by designing a dynamic contract that specifies the compensation flows and the anticipated efforts of the manager by taking into account his incentives and rational behaviors. We formulate a bi-level mechanism design problem for dynamic contract design which can be seen as a special class of differential game. We show that the principal has rational controllability of the systemic risk by designing an incentive compatible estimator of the agent's hidden efforts. We characterize the optimal mechanism design by reformulating the problem into a stochastic optimal control program and derive the solution explicitly. We further reveal a separation principle for dynamic risk management where the effort estimation and the compensation design can be achieved separately. With the increasing connectivity enabled by the Internet of Things (IoT), security becomes a critical concern, and users should invest to secure their IoT applications. Due to the massive devices in the IoT network, users cannot be aware of the security policies taken by all its connected neighbors. Instead, a user makes security decisions based on the cyber risks that he perceives by observing a selected number of nodes. To this end, we propose a model which incorporates the limited attention or bounded rationality nature of players in the IoT. Specifically, each individual builds a sparse cognitive network of nodes to respond to. Based on this simplified cognitive network representation, each user then determines his security management policy by minimizing his own real-world security cost. The bounded rational decision-makings of players and their cognitive network formations are interdependent and thus should be addressed in a holistic manner. We establish a games-in-games framework and propose a Gestalt Nash equilibrium (GNE) solution concept to characterize the decisions of agents and quantify their risk of bounded perception due to the limited attention. In addition, we design a proximal-based iterative algorithm to compute the GNE. With case studies of smart communities, the designed algorithm can successfully identify the critical users whose decisions need to be taken into account by the other users during the security management. The integration of modern information and communication technologies (ICTs) into critical infrastructures (CIs) improves its connectivity and functionalities yet also brings cyber threats. It is thus essential to understand the risk of ICTs on CIs holistically as a cyber-physical system and design efficient security hardening mechanisms. To this end, we capture the system behaviors of the CIs under malicious attacks and the protection strategies by a zero-sum game. We further propose a computationally tractable approximation for large-scale networks which builds on the factored graph that exploits the dependency structure of the nodes of CIs and the approximate dynamic programming tools for stochastic Markov games. This work focuses on a localized information structure and the single-controller game solvable by linear programming. Numerical results illustrate the proper tradeoff of the approximation accuracy and computation complexity in the new design paradigm and show the proactive security at the time of unanticipated attacks.