Systematic study of interest rate risk management strategies in commercial banking portfolio management

Posted: Oct 28, 2025

• Dr. Prof. Abigail Kumar
• Dr. Prof. Anna Moretti
• Dr. Prof. Ava Wei

Abstract

The management of interest rate risk represents one of the most critical challenges facing commercial banking institutions in the contemporary financial landscape. As global financial markets become increasingly interconnected and monetary policies evolve in response to economic pressures, banking institutions must develop sophisticated strategies to mitigate the adverse effects of interest rate fluctuations on their portfolio performance. Traditional approaches to interest rate risk management have primarily relied on duration gap analysis, value-at-risk models, and scenario testing methodologies. However, these conventional techniques often fail to capture the complex nonlinear relationships and dynamic interdependencies that characterize modern financial markets. This research introduces a novel computational framework that integrates quantum-inspired optimization algorithms with established financial risk management principles. The motivation for this study stems from the observed limitations of traditional methods in adapting to rapidly changing market conditions and the increasing complexity of banking portfolios. Commercial banks today manage diverse asset classes with varying sensitivity to interest rate movements, requiring more sophisticated analytical tools than those provided by conventional duration-based approaches.