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AI Innovations in Market Risk Analysis and VaR Modelling

AI Innovations in Market Risk Analysis and VaR Modelling
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Author(s): V. Saravanakrishnan (Christ University, India), M. Nandhini (Karpagam Academy of Higher Education, India)and P. Palanivelu (Karpagam Academy of Higher Education, India)
Copyright: 2025
Pages: 22
Source title: Data Analytics and AI for Quantitative Risk Assessment and Financial Computation
Source Author(s)/Editor(s): Mohammad Gouse Galety (Samarkand International University of Technology, Uzbekistan), Jimbo Henri Claver (Samarkand Interntional University of Technology, Uzbekistan), A. V. Sriharsha (Mohan Babu University, India), Narasimha Rao Vajjhala (University of New York Tirana, Tirana, Albania)and Arul Kumar Natarajan (Samarkand International University of Technology, Uzbekistan)
DOI: 10.4018/979-8-3693-6215-0.ch002

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Abstract

This chapter examines how AI is transforming financial risk analysis and valuation. Traditional models often overlook tail risks and complex market dynamics, but AI introduces innovative techniques that enhance risk assessment and monitoring, addressing the shortcomings of VaR models. It delves into AI fundamentals, particularly deep learning and machine learning. It offers advanced methods for data processing, predictive modeling, and feature engineering, all crucial for integrating AI into the VaR estimation process. The chapter also emphasizes the significance of AI in risk management, especially in regulatory compliance, by exploring capabilities like natural language processing and portfolio optimization, which are vital for adapting to evolving regulations. The chapter provides a comprehensive overview of AI-based market risk analysis, highlighting AI's essenAI's role in helping financial institutions navigate volatile markets and increased regulatory scrutiny. It discusses current challenges and future directions, showcasing AI's pivotAI'sontribution to the industry.

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