Financial Risk Management with AI

Learning Outcomes

Knowledge and Understanding

Having successfully completed this module, you will be able to demonstrate knowledge and understanding of:

• the main derivative instruments (such as forwards, futures, swaps and options), their payoff structures, and how they are used in practice to hedge key market and credit risk exposures
• regulatory issues concerning investment banks, securities firms and other major financial institutions, and how these are being challenged by AI-enabled and digitally delivered financial services
• how AI-enabled tools and data-driven models are being used in financial risk management, together with their potential benefits and the associated challenges for model risk, transparency and regulatory oversight.
• how banks/firms allocate capital among their departments in respect of both volatile and calm market conditions
• the principal approaches to measuring market and credit risk (for example value-at-risk, expected shortfall, stress testing and scenario analysis) and the strengths and limitations of these risk measurement tools

Transferable and Generic Skills

Having successfully completed this module you will be able to:

• develop clear logical thinking;
• compose and communicate ideas effectively
• apply knowledge learned in the class to particular problems.

Subject Specific Intellectual and Research Skills

Having successfully completed this module you will be able to:

• apply standard market and credit risk measurement techniques (such as value-at-risk, stress testing and scenario analysis) to simple portfolios and critically interpret the results and their limitations
• analyse the risk profile of basic trading or banking positions, and explain the implications of alternative hedging and risk management strategies using derivatives
• critically appraise non-technical descriptions of AI-based tools used in finance, identifying their potential contributions to risk management as well as the risks and limitations they introduce for institutions and the wider financial system
• assess how FinTech developments, platform-based finance and other recent financial innovations alter the transmission and concentration of risk, using real-world examples and cases

Formative

This is how we’ll give you feedback as you are learning. It is not a formal test or exam.

Peer assessment

• Assessment Type: Formative
• Feedback: Peer and self-assessment methods will be used to help students assess their understanding; exercises, which students will be recommended to attempt by themselves, will be available in lectures or on online blackboard and the answer is available one week after.
• Final Assessment: No
• Group Work: No

Summative

This is how we’ll formally assess what you have learned in this module.

Referral

This is how we’ll assess you if you don’t meet the criteria to pass this module.

Repeat

An internal repeat is where you take all of your modules again, including any you passed. An external repeat is where you only re-take the modules you failed.