Quantum algorithm for copula-based risk aggregation using orthogonal series density estimation

• URL: http://arxiv.org/abs/2404.10624v1
• Date: Tue, 16 Apr 2024 14:46:04 GMT
• Title: Quantum algorithm for copula-based risk aggregation using orthogonal series density estimation
• Authors: Hitomi Mori, Koichi Miyamoto,
• Abstract summary: Quantum Monte Carlo integration (QMCI) provides a quadratic speed-up over its classical counterpart. This paper considers its application to risk aggregation, one of the most important numerical tasks in financial risk management.
• Score: 0.0
• License: http://creativecommons.org/licenses/by/4.0/
• Abstract: Quantum Monte Carlo integration (QMCI) provides a quadratic speed-up over its classical counterpart, and its applications have been investigated in various fields, including finance. This paper considers its application to risk aggregation, one of the most important numerical tasks in financial risk management. Risk aggregation combines several risk variables and quantifies the total amount of risk, taking into account the correlation among them. For this task, there exists a useful tool called copula, with which the joint distribution can be generated from marginal distributions with a flexible correlation structure. Classically, the copula-based method utilizes sampling of risk variables. However, this procedure is not directly applicable to the quantum setting, where sampled values are not stored as classical data, and thus no efficient quantum algorithm is known. In this paper, we propose a quantum algorithm for copula-based risk aggregation that is compatible with QMCI. In our algorithm, we first estimate each marginal distribution as a series of orthogonal functions, where the coefficients can be calculated with QMCI. Then, by plugging the marginal distributions into the copula and obtaining the joint distribution, we estimate risk measures using QMCI again. With this algorithm, nearly quadratic quantum speed-up can be obtained for sufficiently smooth marginal distributions.

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