Can Artificial Intelligence Reduce Financial Crises Risk Through Better Risk Modeling?
0 viewsAbstract
One of the most disruptive technologies in the financial industry has been Artificial Intelligence (AI). Over the last few years, financial institutions have begun to bank on AI systems to help them in making better decisions, risk assessment and averting possible financial instability. This essay examines the possibility of Artificial Intelligence to mitigate the risk of financial crisis by enhancing risk modeling and prediction models. Conventional financial risk management practices rely primarily on the past, statistical model and human judgment. Although these techniques have been around decades, they usually do not capture sudden shifts in the markets or complicated interactions within the global financial systems. Conversely, AI systems are able to process large volumes of real-time data and discern unseen trends, and make quicker and more precise forecasts. Regardless of these benefits, AI has its limitations. This paper will compare conventional risk models to AI-based models and assess their ability to minimize risks of financial crises. Its results indicate that AI enhances risk detection and prediction ability greatly. Nevertheless, it is not able to eradicate financial crises altogether because of the complexity of financial systems in the world and the factors of human behavior. Overall, AI is a highly effective instrument that contributes to financial stability, yet it must be implemented as an auxiliary instrument instead of a full-scale substitute of the conventional financial risk management.
Keywords
Artificial Intelligence, Financial Crisis, Financial Forecasting, Financial Stability, Machine Learning, Risk Modeling