Quantum computation for pricing the collateralized debt obligations

Quantum EngineeringVolume 3, Issue 4 e84 RESEARCH ARTICLE Quantum computation for pricing the collateralized debt obligations Hao Tang, Corresponding Author Hao Tang htang2015@sjtu.edu.cn Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai, China CAS Center for Excellence and Synergetic Innovation Center in Quantum Information and Quantum Physics, University of Science and Technology of China, Hefei, China Correspondence Hao Tang and Xian-Min Jin, Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai 200240, China. Email: htang2015@sjtu.edu.cn and xianmin.jin@sjtu.edu.cnSearch for more papers by this authorAnurag Pal, Anurag Pal Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai, China CAS Center for Excellence and Synergetic Innovation Center in Quantum Information and Quantum Physics, University of Science and Technology of China, Hefei, ChinaSearch for more papers by this authorTian-Yu Wang, Tian-Yu Wang Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai, China CAS Center for Excellence and Synergetic Innovation Center in Quantum Information and Quantum Physics, University of Science and Technology of China, Hefei, ChinaSearch for more papers by this authorLu-Feng Qiao, Lu-Feng Qiao Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai, China CAS Center for Excellence and Synergetic Innovation Center in Quantum Information and Quantum Physics, University of Science and Technology of China, Hefei, ChinaSearch for more papers by this authorJun Gao, Jun Gao Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai, China CAS Center for Excellence and Synergetic Innovation Center in Quantum Information and Quantum Physics, University of Science and Technology of China, Hefei, ChinaSearch for more papers by this authorXian-Min Jin, Corresponding Author Xian-Min Jin xianmin.jin@sjtu.edu.cn Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai, China CAS Center for Excellence and Synergetic Innovation Center in Quantum Information and Quantum Physics, University of Science and Technology of China, Hefei, China TuringQ Co., Ltd., Shanghai, China Correspondence Hao Tang and Xian-Min Jin, Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai 200240, China. Email: htang2015@sjtu.edu.cn and xianmin.jin@sjtu.edu.cnSearch for more papers by this author Hao Tang, Corresponding Author Hao Tang htang2015@sjtu.edu.cn Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai, China CAS Center for Excellence and Synergetic Innovation Center in Quantum Information and Quantum Physics, University of Science and Technology of China, Hefei, China Correspondence Hao Tang and Xian-Min Jin, Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai 200240, China. Email: htang2015@sjtu.edu.cn and xianmin.jin@sjtu.edu.cnSearch for more papers by this authorAnurag Pal, Anurag Pal Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai, China CAS Center for Excellence and Synergetic Innovation Center in Quantum Information and Quantum Physics, University of Science and Technology of China, Hefei, ChinaSearch for more papers by this authorTian-Yu Wang, Tian-Yu Wang Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai, China CAS Center for Excellence and Synergetic Innovation Center in Quantum Information and Quantum Physics, University of Science and Technology of China, Hefei, ChinaSearch for more papers by this authorLu-Feng Qiao, Lu-Feng Qiao Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai, China CAS Center for Excellence and Synergetic Innovation Center in Quantum Information and Quantum Physics, University of Science and Technology of China, Hefei, ChinaSearch for more papers by this authorJun Gao, Jun Gao Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai, China CAS Center for Excellence and Synergetic Innovation Center in Quantum Information and Quantum Physics, University of Science and Technology of China, Hefei, ChinaSearch for more papers by this authorXian-Min Jin, Corresponding Author Xian-Min Jin xianmin.jin@sjtu.edu.cn Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai, China CAS Center for Excellence and Synergetic Innovation Center in Quantum Information and Quantum Physics, University of Science and Technology of China, Hefei, China TuringQ Co., Ltd., Shanghai, China Correspondence Hao Tang and Xian-Min Jin, Center for Integrated Quantum Information Technologies (IQIT), School of Physics and Astronomy and State Key Laboratory of Advanced Optical Communication Systems and Networks, Shanghai Jiao Tong University, Shanghai 200240, China. Email: htang2015@sjtu.edu.cn and xianmin.jin@sjtu.edu.cnSearch for more papers by this author First published: 03 November 2021 https://doi.org/10.1002/que2.84 Funding information: National Key R&D Program of China, 2019YFA0308700; 2017YFA0303700; National Natural Science Foundation of China, 61734005; 11761141014; 11690033; 11904229; Science and Technology Commission of Shanghai Municipality (STCSM), 21ZR1432800; 17JC1400403; Shanghai Municipal Education Commission (SMEC), 2017-01-07-00-02-E00049 Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Abstract Collateralized debt obligation (CDO) has been one of the most commonly used structured financial products and is intensively studied in quantitative finance. By setting the asset pool into different tranches, it effectively works out and redistributes credit risks and returns to meet the risk preferences for different tranche investors. The copula models of various kinds are normally used for pricing CDOs, and the Monte Carlo simulations are required to get their numerical solution. Here we implement two typical CDO models, the single-factor Gaussian copula model and normal inverse Gaussian copula model, and by applying the conditional independence approach, we manage to load each model of distribution in quantum circuits. We then apply quantum amplitude estimation as an alternative to Monte Carlo simulation for CDO pricing. We demonstrate the quantum computation results using IBM Qiskit. Our work addresses a useful task in finance instrument pricing, significantly broadening the application scope for quantum computing in finance. Open Research DATA AVAILABILITY STATEMENT The data that support the plots within this article and other findings of this study are available from the corresponding author upon reasonable request. Supporting Information Filename Description que284-sup-0001-supinfo.pdfPDF document, 7 MB Appendix S1 Supplementary material Please note: The publisher is not responsible for the content or functionality of any supporting information supplied by the authors. Any queries (other than missing content) should be directed to the corresponding author for the article. Volume3, Issue4December 2021e84 RelatedInformation