Quantum Computation for Pricing the Collateralized Debt Obligations

Hao Tang, Anurag Pal, Lu-Feng Qiao, Tian-Yu Wang, Jun Gao and Xian-Min Jin

Papers from arXiv.org

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.

Date: 2020-08, Revised 2021-04
New Economics Papers: this item is included in nep-ban and nep-cmp
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://arxiv.org/pdf/2008.04110 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2008.04110

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().