Empirical Monte Carlo Simulation of Technological Disruption and its Impact on Financial Operations
AUTHORS
Teodora Lupu,West University of Timișoara, Romania
ABSTRACT
The rapid advancement of digital technologies is fundamentally transforming the financial sector, particularly within banking operations. While innovations such as artificial intelligence, blockchain, and real-time analytics offer efficiency gains and enhanced customer experiences, they also introduce new dimensions of risk that traditional assessment models struggle to capture. This study explores the impact of technological disruption on financial operations through an empirical Monte Carlo simulation framework. By modeling a comprehensive set of variables—including operational losses, revenue streams, cybersecurity threats, and digital adoption metrics—this research simulates 10,000 iterations under baseline, moderate, and high disruption scenarios. The simulation results indicate that as the level of technological disruption intensifies, financial institutions face significantly higher mean losses, increased variability, and more pronounced tail risks, as reflected in rising Value at Risk (VaR) and Expected Shortfall (ES) measures. Sensitivity analyses reveal that even modest changes in digital risk factors can produce disproportionate effects on operational stability, underscoring the need for adaptive and probabilistic risk management strategies. Furthermore, the time-series outputs demonstrate volatility clustering under high disruption conditions, highlighting the value of real-time risk monitoring systems. This study contributes to the literature by integrating innovation diffusion theory with quantitative risk modeling to provide a holistic understanding of digital transformation’s operational consequences. The findings advocate for the incorporation of advanced simulation techniques into regulatory and institutional risk frameworks. By doing so, financial institutions can better anticipate, quantify, and mitigate the stochastic uncertainties of operating in an increasingly digital and interconnected environment.
KEYWORDS
Technological disruption, Monte Carlo simulation, Financial risk management, Digital banking, Operational risk
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