AI-Driven Multiscenario Interest Rate Forecasting: A Proof of Concept for Banking Asset Management

Abstract:This study focuses on developing an AI-supported prototype for multiperspective interest rate forecasting that combines classical econometric models with modern artificial intel-ligence methods. Tested in a major European bank, the system enables more precise and flexible prediction of interest rate developments, supporting strategic decision-making in Asset-Liability Management (ALM). It integrates topic modeling, sentiment analysis, econometric forecasting, and market-based analyses within an interactive platform. Leveraging AI to analyze large volumes of financial documents and market data enables the identification of monetary policy trends and sentiment signals at an early stage. The core econometric model is a Bayesian vector autoregression (BVAR) that enables simulation-based scenario analyses to evaluate economic developments from multiple perspectives. The system's innovation lies in its integration of several forecasting approaches that consolidate previously separate information sources and present them transparently and interpretably. Financial analysts and risk managers thus gain a better basis for making decisions, allowing them to assess interest rate risks more accurately and manage market movements more proactively. While the prototype demonstrates how AI can transform interest rate management in banking, further development is required to optimize real-time data integration and regulatory compliance. Even at this stage, the study shows that multi-perspective, AI-driven forecasting provides substantial added value for banks by increasing transparency, strengthening evidence-based decision-making, and improving risk management.

Computational Finance (q-fin.CP); Machine Learning (cs.LG); Statistical Finance (q-fin.ST)

G.3; I.2.6; I.2.7; J.1

arXiv:2608.12424 [q-fin.CP]

(or arXiv:2608.12424v2 [q-fin.CP] for this version)

https://doi.org/10.48550/arXiv.2608.12424 Focus to learn more arXiv-issued DOI via DataCite

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