Advanced frameworks for managing interest rate risk in banking investment portfolios
Posted: Jul 21, 2023
Abstract
The management of interest rate risk represents one of the most critical challenges facing financial institutions in the contemporary banking landscape. Traditional approaches to interest rate risk management, predominantly centered around duration and convexity measures, have demonstrated significant limitations in capturing the complex, non-linear dynamics of modern financial markets. This research introduces a fundamentally new paradigm for interest rate risk management that draws inspiration from quantum computational principles and integrates them with advanced machine learning techniques. The framework we develop enables banks to model interest rate risk with unprecedented granularity, capturing not only the direct effects of rate changes on individual instruments but also the complex network effects that propagate through interconnected portfolio components.
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