Model Risk Mangement in Finance

Hainan Zhang, PhD
Citibank

Abstract: In finance, risk refers to the possibility of financial loss or uncertainty that can negatively impact investments or business ventures, ultimately affecting a company’s profitability, cash flow, and overall financial health. Risk management in finance involves the processes of identifying, measuring, monitoring, controlling, and reporting risks. In response to the 2008 global financial crisis, Congress passed the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which aimed to prevent future crises by imposing additional regulatory requirements to enforce industry accountability and transparency. These regulations ensure that Bank Holding Companies (BHCs) maintain sufficient capital to withstand potential economic downturns. The Comprehensive Capital Analysis and Review (CCAR) is a set of processes and  reporting requirements used by the Federal Reserve Bank (FRB) to oversee a financial institution’s capital adequacy, capital distribution, and capital planning processes under various economic stress scenarios. This presentation will briefly discuss risk management in the context of the model validation process, demonstrating how financial institutions manage and mitigate risk.

Biography: Hainan Zhang earned a BS and MS in Mathematics from Kansas State University and an MA in Statistics from Columbia University. He obtained a PhD in Industrial and Systems Engineering from Rutgers University. His research interests include reliability modeling in weighted voting systems and economic modeling of climate risk. He is currently working at Citibank in New York City.