2020/08/06 by Hao Tang, Anurag Pal, Tang, Hao +9 · 1 citation
Computer Science · Economics, Econometrics and Finance · Physics and Astronomy · #FOS: Economics and business #FOS: Physical sciences #Quantum Computing Algorithms and Architecture #Quantum Mechanics and Applications #Quantum Physics (quant-ph) #Risk Management (q-fin.RM) #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.2008.04110
openalex publication_date 2020/08/06 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
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.