Advanced frameworks for managing market risk in banking trading book operations
Posted: Oct 28, 2025
Abstract
The landscape of market risk management in banking trading book operations has undergone significant transformation since the global financial crisis of 2008. Traditional risk management frameworks, primarily built upon Value at Risk (VaR) methodologies and their extensions, have repeatedly demonstrated critical vulnerabilities during periods of market stress. This research addresses these fundamental limitations by introducing a quantum-inspired risk management framework that represents a paradigm shift in how financial institutions conceptualize and measure market risk. Our approach moves beyond the statistical boundaries of conventional methodologies by incorporating principles from quantum probability and quantum computing. The framework treats market movements not as discrete, independent events but as probabilistic wave functions that exist in superposition across multiple potential states, enabling simultaneous evaluation of numerous risk scenarios and capturing the complex interdependencies and non-linear relationships that characterize modern financial markets.
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