EXPLOIT DERIVATIVES & NATIONAL SECURITY

Abstract

Critical infrastructures remain vulnerable to cyber attack despite a raft of post-9/l] legislation focused on cyber security in critical infrastructures. An emerging discipline known as the "economics of information security" may provide a partial solution in the form of a hypothetical market that trades "exploit derivatives, " a modified futures contract tied to cyber security events. This paper argues that such a market could serve to predict and prevent cyber attacks through the operation of the efficient capital market hypothesis, but only after changes to the present regulatory environment. Specifically, I argue that a statutory safe harbor would allow the creation of a pilot market focused on vulnerabilities in Internet protocol version six, an emerging communications standard that China hopes to deploy throughout its national network before the 2008 Olympics. Indeed, such a safe harbor would align the interests of military and civilian policymakers on the common goal of protecting critical infrastructure from a computer network attack originating in China, whether instigating by the People's Liberation Army or so-called "black-hat" hackers.