This assignment, focused on Financial Modelling (FIN280), requires students to analyze risk management failures and develop strategies for mitigating model risk. The report begins with an overview of the Knight Capital case, contrasting it with the London Whale case study to highlight the importance of robust financial models and effective risk management. The student explores the beneficial uses of financial models, emphasizing the need for actions to mitigate risks, including formal and informal review processes, stress testing, and model audits. The assignment also examines improvements overlooked in the Knight Capital case, such as the significance of regulatory oversight and the training and qualification of personnel. The report covers how to effectively use Excel to model business problems and extract essential data from spreadsheets, as well as how to summarize and communicate the assumptions, implications, and results of spreadsheet models. The aim is to aid the risk management sub-committee in understanding the importance of managing model risk. The report emphasizes the importance of best practices, including user-friendly design, consistency, error reduction, and data security, to ensure the reliability and integrity of financial models.
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