Artificial Intelligence’s (AI): Implications in Managing Financial Risks (FRM)

This paper looks at how various forms of AI can manage financial risk management. The impetus for this change is the revolutionary impact that financial technology has had on business operations, necessitating a complete overhaul of the financial sector. Financial risk management must reorganise because conventional approaches have become inefficient. Artificial intelligence methods are primarily practical and have aided in the quick, cheap, and effective management of financial risks in businesses and financial institutions. This paper aims to provide an overview of the current state of artificial intelligence (AI) techniques applied to the field of financial risk management and to indicate potential future directions for research and development in this area. The data for the study was gathered by reading an assortment of articles, books, and reports regarding the implementation of AI in financial risk management. Methods: The question is whether artificial intelligence (AI) techniques (particularly machine learning) might help manage financial risks by systematically reviewing the relevant literature. Conclusions: Model validation, risk modelling, stress testing, and data preparation are all areas where AI has significantly benefited market risk and credit risk management. Data quality control, fraud detection, and text mining for data augmentation are all areas in which (AI) artificial intelligence techniques have proven useful. The financial sector will continue to be influenced by financial technology as incumbents are compelled to adopt new operational methods and strategies. Consequently, it is realistic to anticipate that AI will become a mainstream component of financial risk management systems. The paper’s contribution is a survey of AI’s uses in three fields: financial (market and credit), risk management and operational (business continuity and disaster recovery). The paper went over the most promising AI methods that should impede better managing risks in the changing financial sector.