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Algorithms · Amplitude estimation

Value at Risk by quantum amplitude estimation

Evaluate risk measures of a financial position — Value at Risk and Conditional Value at Risk among them — where the classical route is a Monte Carlo simulation over sampled realisations of the uncertainty.

Attested & literatureUpdated

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A small worked example, computed in your browser. It is not a result from this record's papers.

Canonical amplitude estimation

3 counting qubits estimating a = sin²(θ) for the one-qubit state A|0⟩ = RY(π/4)|0⟩, θ = π/8.

q0q1q2q3Step 1 of 4 · RY(π/4)RY(π/4)Step 2 of 4 · Hadamard layer(3)Hadamard layer(3)Step 3 of 4 · Amplitude estimation powers(3)Amplitude estimation powers(3)Step 4 of 4 · QFT inverse(3)QFT inverse(3)

Step 1 of 4 · RY(π/4)

Probability of each outcome after this step

  • 000085%
  • 100015%
  1. Prepares the target qubit as A|0⟩ = cos(θ)|0⟩ + sin(θ)|1⟩; the quantity being estimated is a = sin²(θ), the probability that measuring this qubit alone would give |1⟩.

    Probability spreads from 1 outcome to 2.

  2. Spreads the 3 counting qubits into an equal superposition of all 8 values.

    Probability spreads from 2 outcomes to 16.

  3. Applies controlled powers of the Grover operator Q = A Z A⁻¹ Z, one power per counting qubit: phase estimation of Q, using A|0⟩ in place of a single eigenstate.

    Probability moves between the same 16 outcomes. Down: 0110 10.7% → 1.8%, 0010 10.7% → 1.8%. This is the step that entangles the qubits: from here on no single qubit has a state of its own, only the register as a whole does.

  4. An inverse QFT on the counting register reads the phase into a 3-bit estimate.

    Probability gathers from 16 outcomes onto 4. 0001 goes from 1.8% to 25.0%.

Readout The counting register reads 001 or 111, each equally likely: these are θ/π = 1/8 and its mirror 1 − 1/8 = 7/8, both exact in 3 bits by construction. Either one gives a = sin²(π/8) = (2 − √2) / 4 exactly, the standard amplitude-estimation formula a = sin²(πλ) applied to the smaller of the two readings.

Open in Studio
  • Record typeLiterature reference
  • Reference implementationvalue_at_risk
  • Reported costA convergence rate of O(M⁻²ᐟ³) at the shortest possible circuit depth, which the abstract describes as growing polynomially in the number of qubits representing the uncertainty, against O(M⁻¹ᐟ²) for classical Monte Carlo; allowing the depth to grow faster but still polynomially brings the rate toward the optimum of O(M⁻¹), which the abstract characterises as a near quadratic speed-up compared to Monte Carlo methods for slowly increasing circuit depths. The abstract states the result only in those terms: it gives no gate count, no qubit count, no dependence on the number of risk factors, and no constant factor.
  • Papers1

Woerner and Egger present a quantum algorithm that, they state, analyzes risk more efficiently than the Monte Carlo simulations traditionally used on classical computers. The algorithm employs quantum amplitude estimation to evaluate risk measures such as Value at Risk and Conditional Value at Risk on a gate-based quantum computer, and the paper additionally shows how to implement it and how to trade off the convergence rate against the circuit depth. That trade-off is the substance of the result: at the shortest possible circuit depth — one the authors describe as growing polynomially in the number of qubits representing the uncertainty — the convergence rate is O(M⁻²ᐟ³), which the paper notes is already faster than classical Monte Carlo simulations converging at O(M⁻¹ᐟ²); allowing the depth to grow faster, but still polynomially, brings the rate toward the optimum of O(M⁻¹). The authors demonstrate the algorithm on two toy models, using real hardware such as the IBM Q Experience to measure the financial risk in a Treasury-bill faced by a possible interest rate increase in the first, and simulating the algorithm for a two-asset portfolio of government debt with different maturity dates in the second. They report that both models confirm the improved convergence rate over Monte Carlo methods, and that they also evaluate the impact of cross-talk and energy relaxation errors using simulations. Reported cost: A convergence rate of O(M⁻²ᐟ³) at the shortest possible circuit depth, which the abstract describes as growing polynomially in the number of qubits representing the uncertainty, against O(M⁻¹ᐟ²) for classical Monte Carlo; allowing the depth to grow faster but still polynomially brings the rate toward the optimum of O(M⁻¹), which the abstract characterises as a near quadratic speed-up compared to Monte Carlo methods for slowly increasing circuit depths. The abstract states the result only in those terms: it gives no gate count, no qubit count, no dependence on the number of risk factors, and no constant factor..

References

  • Quantum Risk Analysis

    Stefan Woerner, Daniel J. Egger · 2018

    Primary source: it presents the algorithm, employs quantum amplitude estimation to evaluate risk measures such as Value at Risk and Conditional Value at Risk on a gate-based quantum computer, states the convergence rates at the shortest possible circuit depth and at faster-growing polynomial depths, and reports the two toy models — the T-bill on real hardware such as the IBM Q Experience, and the simulated two-asset government-debt portfolio. Consult it for how the uncertainty is loaded, how the risk measure is read out of the amplitude, what the circuit depths actually are, and for the cross-talk and energy relaxation study; the abstract states none of those.

Attested & literature
  • Peer-reviewed paper
Method
Curation only. This record documents the algorithm a published reference implementation demonstrates, not the demonstration itself: nothing in Leona runs Qmod. The primary reference's title, authors and submission year were read from its arXiv abs page, and the complexity claim taken from a clause of that paper's abstract (abstract of arXiv:1806.06893 (TeX rendered into Unicode: the abstract writes the rates in inline math mode as $O(M^{-2/3})$, $O(M^{-1/2})$ and $O(M^{-1})$, written above as O(M⁻²ᐟ³), O(M⁻¹ᐟ²) and O(M⁻¹)): "The shortest possible circuit depth - growing polynomially in the number of qubits representing the uncertainty - leads to a convergence rate of $O(M^{-2/3})$." and "This is already faster than classical Monte Carlo simulations which converge at a rate of $O(M^{-1/2})$." and "If we allow the circuit depth to grow faster, but still polynomially, the convergence rate quickly approaches the optimum of $O(M^{-1})$." The comparison is the abstract's own: "Thus, for slowly increasing circuit depths our algorithm provides a near quadratic speed-up compared to Monte Carlo methods." The same abstract fixes what is being computed — "We employ quantum amplitude estimation to evaluate risk measures such as Value at Risk and Conditional Value at Risk on a gate-based quantum computer." — and quotes no gate count, no qubit count and no constant anywhere. The demonstration this record covers states no complexity bound of its own. Those are the only sources read for this field.). No circuit was constructed, simulated or run.
Result
Pass · the record's problem statement and primary reference agree with the sources named above.
Caveat
This is a literature record. No circuit was written, compiled, simulated or run for it, no risk measure was computed here, and no portfolio or instrument was priced; the record documents the algorithm and does not reproduce or verify any published demonstration of it. The index entry read here gives the directory path applications/finance/value_at_risk and its two file names, nothing about what those files contain. Every rate above is a convergence rate in M, the abstract's own variable, and a rate is not a running time: nothing here says how many gates, how many qubits, or how much depth a given instance costs, how the cost depends on the number of risk factors or on the distribution being loaded, or what it takes to prepare the state that represents the uncertainty in the first place — the abstract states none of that, and loading a distribution is where a quantum advantage of this shape is most often lost. The near quadratic speed-up is stated for slowly increasing circuit depths and is a comparison against Monte Carlo methods as the authors reckon them, not a lower bound on any classical approach, and the shortest-depth rate is quoted with its own condition attached rather than as the algorithm's cost in general. The two toy models are the paper's own: the T-bill measurement on real hardware such as the IBM Q Experience and the simulated two-asset government-debt portfolio were reported by the authors in 2018 at the sizes they describe, and neither was repeated, re-measured or checked for this record, which says nothing about any machine available now. That both models confirm the improved convergence rate is the authors' reading of their own results on two toy models, not evidence about instruments, portfolios or risk measures beyond them. The cross-talk and energy relaxation errors were evaluated by the authors using simulations, so nothing here establishes how the algorithm behaves under any other noise, on any other device, or at any scale where a risk calculation would matter to a reader.
Quantum Risk Analysis ↗
Kind
curated reference
Reviewed by
Leona Quantum curation pass
License
Citation metadata only; source publication terms apply
value at riskrisk analysisamplitude estimationmonte carlofinance

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