When I interned at HSBC, the first thing I learned was the “Clean Desk Policy”, which required employees, when leaving the office, to remove all files from desks and lock them in the drawers to avoid information leak. In the following months, I frequently took online courses delivered by departments such as Risk Control and Financial Crime Compliance, including contents of anti-money laundering, information control, and business with customers in sensitive areas where sanctions were imposed. I realised that risk management was really crucial for financial sectors.

My trading experience also makes me aware of risk. I am managing a ‘fund’ for myself and my friends, investing in cryptocurrencies such as Bitcoin and Ethereum, risky assets whose prices jump up and down all day. Using momentum strategy, I trade spots and futures in an exchange OKEx, as well as options in another Deribit. They are all covered in the elective module Derivatives. Being short of regulation, this premature market is full of information asymmetry and market manipulation, often fluctuating fiercely. I desire to measure how risky cryptocurrencies are, and under what circumstance they have investment worthiness.

The compulsory course Asset Market involves an compelling topic, asset pricing. With valuation, I can find overvalued and undervalued assets, from which investment opportunities arise. Making trade-offs between expected return rate and volatility by rules in portfolio management such as Roy’s Safety-First Criterion, we optimise investment decisions. I once participated in Prof Groen-Xu’s Corporate Finance in [University Name]-PKU Summer School and learned valuation using cash flow. To carry out prospective analysis, I analysed financial statements of Workspace Group PLC and made forecasts based on past growth rates. Using discounted cash flow, I generated estimation of present value of total assets. With cash flow sequence and net present value as means, it is very intuitive to weigh the pros and cons of investments and to determine intrinsic security prices. Expected return on equity can be drawn from CAPM with estimated market return and security beta adjusted by Blume Method based on historical data. Debt structure can also be optimised according to financing rates and demands. This information about expected return rate and debt and equity structure can help financial officers design their company’s capital structure with reasonable risk level and help investors make investment decisions.

Risk plays an crucial role in valuation for cryptocurrencies I invest in. Elective module Valuation and Security Analysis enables me to value traditional assets such as stocks and fixed-income securities. It helps me apply skills from the perspective of analysts in equity research and fund management, which is my future career goal. However, these valuation methods are not applicable to cryptocurrencies, which do not generate cash flows. Fortunately, Acharya and Pedersen (2005) inspired me. They pointed out that a security’s required return depends on its expected liquidity and on the covariances of its own return and liquidity with those of the market. This theoretical model helps to explain how asset prices are affected by liquidity risk and commonality in liquidity. Similar to principle of famous Fama and French Three Factor Model, liquidity risk factors may carry large factor loadings on intrinsic price of cryptocurrencies.

Contents of risk measurement in this programme are valuable for me to research the valuation of emerging digital assets. According to Prof Jon Danielsson’s paper, we may encounter difficulties when measuring risk, since existing, widely-adopted measurements like VaR are unable to capture the risk in the tails beyond the specific probability, can be easily manipulated, and become extremely uncertain and unreliable when the sample size gets smaller. In another paper, I was impressed by his finding that unusual high and low volatilities are significant predictors of banking crises. This finding is of clear interest to regulators and investors. If abnormally high level of risk always can be detected, policymakers can certainly do something to avoid more serious crisis, and investors can manage their risk by hedging and diversification.

Later, in a project I led named poverty alleviation information disclosure and price collapse, I studied further on market risk. The study shows that A-shares listed companies that disclose more poverty alleviation information and shoulder more social responsibilities have significantly lower market risk. Usually, price collapse could only be observed by backtesting of historical data; thus, for investors in secondary market, risk of price collapse could not be measured and managed in advance. Our research provides an alternative solution: measuring the risk indirectly by observing the company's information disclosure and social commitment. To explain the causal relationship, we found that such companies with less market risk tend to possess more transparent corporate governance and healthier financial conditions, thereby being able to take on more social responsibilities and disclose related information. Companies that never disclose or rarely disclose such information may be riskier. It provides regulators a new regulatory perspective. I aspire to explore more about what kind of companies need more prudential regulation and how the market determine their risk premium. It is an area with my academic interest within the programme.

As involved in course Management and Regulation of Risk, risk analysis can be divided into several possible specific areas, one of which is liquidity risk of exchanges. I have joined a research studying the liquidity of dollar-denominated assets. We discussed how influential factors like interest rates and monetary policies affect the relative size of dollar-denominated assets in this country’s capital market. Libra, launched by Facebook, designed as a currency called ‘stable coin’, and whose risk has not thoroughly researched by scholars, is a hot topic. A column in Financial Times pointed out that it enabled money laundering, terrorism financing, and other illicit activities strictly prohibited. Libra may also undermine central banks’ macro-prudential monitoring frameworks and effectiveness of monetary policies. Therefore, such emerging digital assets should be regulated with cautiousness. Under the premise of sufficient risk analysis, central banks can even issue their own digital currencies, such as Digital Currency Electronic Payment (DCEP) planning to be issued by the central bank of China. I am ready to share my insights and to discuss with professors and cohorts during the module Financial Market and Regulation involved in the programme.

MSc Risk and Finance is the best programme to enable me to achieve my career goal. Upon graduation, I aspire to work as an Aladdin Business Program Analyst for BlackRock, an asset management company who designed the excellent risk management system, Aladdin. In the long term, I hope to become a fund manager and to develop my own cryptocurrency investment fund, similar to Eterna Capital, founded by three BlackRock former employees. During the programme, I plan to explore a cryptocurrency valuation model based on liquidity risk. In addition, using tools of financial risk management, including diversification, hedging and capital provisions, my fund could preform better when facing external unexpected shocks. I am excited to start working towards my goals and to share my dedication, research experience and insights within the [University Name]’s community.