Integration of Modern Financial Instruments and Digital Technologies in the Investment Management of Banking Institutions (International Journal of Business Management Behavioral Research and Innovations)

Summary

• The article aims to substantiate foundations and practical recommendations for integrating innovative financial instruments and AI technologies into the bank economic security system.p.1
• The main hypothesis is that combining hedging instruments such as currency derivatives and green bonds with predictive AI algorithms improves risk assessment accuracy and optimises costs.p.1
• Instruments reviewed include put options, interest rate swaps, credit default swaps and structured products combining a fixed-income and a derivative component.p.3
• Green bonds are seen as a diversification route for Ukrainian banks, while the undeveloped national green bond market and lack of a unified ESG rating methodology remain barriers.p.4
• Digital technologies are said to give banks advantages such as better analytics, management of credit, market and liquidity risks, and compliance with Basel III standards.p.5
• An integrated digital management model for bank investment activity is proposed, built as a cyclical loop in which monitoring results update the information base and adjust decisions.p.7

Key insights

1. Digitalisation and AI expand the vulnerability of banks to new risks, and traditional security methods lose effectiveness under cyberthreats, ESG risks and volatility.p.1
2. Interest rate swaps allow a bank with fixed-rate assets and floating-rate liabilities to eliminate interest rate risk.p.3
3. Credit default swaps can hedge default by a security issuer within the portfolio.p.3
4. Natural language processing for sentiment analysis allows real-time assessment of news, reports and social media.p.4
5. Key obstacles include fragmentation of information flows, weak interoperability, complex data integration, model risk and limited explainability of AI/ML solutions.p.5
6. The portfolio manager shifts from intuitive decisions to a strategist who configures systems and intervenes in non-standard situations.p.5
7. Portfolio optimisation determines an optimal allocation based on projected yields, evaluated risks, liquidity and constraints.p.6
8. The proposed model provides functional integration of financial instruments and digital technologies within a single adaptive loop.p.7