Rotman School of Management, University of Toronto

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Q&A with the Academic Director: Professor Ing-Haw Cheng

In this blog post we hear from Professor Ing-Haw Cheng, Academic Director of Rotman's Master of Financial Risk Management program

Professor Cheng talks about his background, why risk management is important, and why MFRM is a great option for engineering, computer science, and applied mathematics students who want to break into the finance industry.

Could you tell us a little bit about your background and your research interests in the finance area?

Much of my research has centered on assessing risk, volatility, and the returns of quantitative strategies in those spaces. 

I got started with my research by studying the causes and consequences of the 2007-2008 financial crisis. The financial crisis was the biggest financial event in our recent lifetimes and spurred my curiosity about how banks manage and take risks. My research shed light on how bankers were potentially overly optimistic about housing prices during the peak of the house price boom and how that over-optimism contributed towards risk taking.

I followed that research with several articles on volatility in commodity and commodity derivatives markets -- two markets that have exploded in the past ten years in size and trading volume. I studied how people use those markets to speculate and hedge different risks and how prices in those markets exhibit anomalies.

Let’s talk about risk management today, in light of, for example, the recent failure of Silicon Valley Bank.

The recent failure of Silicon Valley Bank is an excellent illustration for why risk management continues to be important in the aftermath of the financial crisis.

Silicon Valley Bank failed more or less because they had poor risk management controls.

They, for example, lacked a chief risk officer for several months before they failed. They ended up taking several risks that, quite frankly, they should have been able to manage. And due in part due to a lack of effective risk management, the bank ran into a lot of trouble.

Afterwards, we saw markets become nervous about several other regional banks in the U.S. which may have been taking too much risk, and this nervousness reverberated across the world through market volatility. Overall, that market volatility that we've seen in the past few months is just a great illustration for why risk management continues to be relevant today and top of mind for financial institutions.

Has risk management become increasingly important as financial markets have evolved?

Absolutely.  Finance is all about earning rewards by taking smart risks, but evaluating risk is becoming more difficult as the world becomes more complicated and financial markets become even more fast-paced.  

There's a growing demand for people with a combination of subject matter expertise in finance, fluency with data analytics, and a risk management perspective.

Financial institutions know that having risk managers with these skills, who can distill the gigantic volume of information generated by financial markets to quickly inform decisions, will position them to deal with future risks.

What cutting edge tools do risk managers need to understand and utilize to assess risk?

Risk managers these days increasingly need tools at the intersection of finance and technology to quickly synthesize insights from massive amounts of information into actionable insights. To break into the area, skills such as familiarity with Python or other programming languages that are able to analyze large amounts of data are becoming table stakes.

For example, many institutions these days are becoming interested in quantifying their exposure to climate change.  This exercise requires a combination of traditional subject matter expertise in finance -- frameworks for evaluating the impact of risk on asset values -- with advanced data analytics that look at data on climate change projections, historical asset values, and other information to statistically measure those risks.

MFRM sits at the intersection of tech and finance so it is not just for finance majors. Why might non-finance students, such as those in computer science and engineering, choose to pursue risk management as a career?

Engineers, computer scientists, and applied mathematics students are well-versed in the quantitative, technical, and problem-solving skills needed for risk management but lack the background in finance.  But if they are committed and have a strong interest, we can teach them the subject matter expertise in finance they need to succeed.

Overall, risk management is a great option for engineering, computer science, and applied mathematics students who have a strong interest in finance and want to break into the finance industry.

The Master of Financial Risk Management is a full-time program designed to prepare ambitious young professionals for careers in risk management and finance.

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