HOW TO SUPPLEMENT THE SAFETY REQUIREMENTS

Safety requirements based on Probability of Exceedance (POE) take into account only probabilities, but do not control magnitude of outcomes in the tail of the probabilistic distribution. The requirements do not constrain very large outcomes leading to industrial catastrophes. The paper shows how to upgrade safety requirements with the Buffered Probability of Exceedance (bPOE). The bPOE risk function equals a tail probability with known mean of the tail (i.e., it is a probability of the tail such that the mean of the tail equals to the specified value). The paper considers two application areas: 1) Credit ratings of financial synthetic instruments (e.g., AAA, AA, ... credit ratings); 2) Materials strength certification (A-basis, B-basis).