Quantum Coin Hedging, and a Counter Measure

A quantum board game is a multi-round protocol between a single quantum player against the quantum board. Molina and Watrous discovered quantum hedging. They gave an example for perfect quantum hedging: a board game with winning probability < 1, such that the player can win with certainty at least 1-out-of-2 quantum board games played in parallel. Here we show that perfect quantum hedging occurs in a cryptographic protocol - quantum coin flipping. For this reason, when cryptographic protocols are composed, hedging may introduce serious challenges into their analysis. We also show that hedging cannot occur when playing two-outcome board games in sequence. This is done by showing a formula for the value of sequential two-outcome board games, which depends only on the optimal value of a single board game; this formula applies in a more general setting, in which hedging is only a special case

A Survey on Quantum Computational Finance for Derivatives Pricing and VaR

[Abstract]: We review the state of the art and recent advances in quantum computing applied to derivative pricing and the computation of risk estimators like Value at Risk. After a brief description of the financial derivatives, we first review the main models and numerical techniques employed to assess their value and risk on classical computers. We then describe some of the most popular quantum algorithms for pricing and VaR. Finally, we discuss the main remaining challenges for the quantum algorithms to achieve their potential advantages.Xunta de Galicia; ED431G 2019/01All authors acknowledge the European Project NExt ApplicationS of Quantum Computing (NEASQC), funded by Horizon 2020 Program inside the call H2020-FETFLAG-2020-01 (Grant Agreement 951821). Á. Leitao, A. Manzano and C. Vázquez wish to acknowledge the support received from the Centro de Investigación de Galicia “CITIC”, funded by Xunta de Galicia and the European Union (European Regional Development Fund- Galicia 2014-2020 Program), by Grant ED431G 2019/01

Some Theory and Applications of Probability in Quantum Mechanics

This thesis investigates three distinct facets of the theory of quantum information. The first two, quantum state estimation and quantum process estimation, are closely related and deal with the question of how to estimate the classical parameters in a quantum mechanical model. The third attempts to bring quantum theory as close as possible to classical theory through the formalism of quasi-probability. Building a large scale quantum information processor is a significant challenge. First, we require an accurate characterization of the dynamics experienced by the device to allow for the application of error correcting codes and other tools for implementing useful quantum algorithms. The necessary scaling of computational resources needed to characterize a quantum system as a function of the number of subsystems is by now a well studied problem (the scaling is generally exponential). However, irrespective of the computational resources necessary to just write-down a classical description of a quantum state, we can ask about the experimental resources necessary to obtain data (measurement complexity) and the computational resources necessary to generate such a characterization (estimation complexity). These problems are studied here and approached from two directions. The first problem we address is that of quantum state estimation. We apply high-level decision theoretic principles (applied in classical problems such as, for example, universal data compression) to the estimation of a qubit state. We prove that quantum states are more difficult to estimate than their classical counterparts by finding optimal estimation strategies. These strategies, requiring the solution to a difficult optimization problem, are difficult to implement in practise. Fortunately, we find estimation algorithms which come close to optimal but require far fewer resources to compute. Finally, we provide a classical analog of this quantum mechanical problem which reproduces, and gives intuitive explanations for, many of its features, such as why adaptive tomography can quadratically reduce its difficulty. The second method for practical characterization of quantum devices takes is applied to the problem of quantum process estimation. This differs from the above analysis in two ways: (1) we apply strong restrictions on knowledge of various estimation and control parameters (the former making the problem easier, the latter making it harder); and (2) we consider the problem of designing future experiments based on the outcomes of past experiments. We show in test cases that adaptive protocols can exponentially outperform their off-line counterparts. Moreover, we adapt machine learning algorithms to the problem which bring these experimental design methodologies to realm of experimental feasibility. In the final chapter we move away from estimation problems to show formally that a classical representation of quantum theory is not tenable. This intuitive conclusion is formally borne out through the connection to quasi-probability -- where it is equivalent to the necessity of negative probability in all such representations of quantum theory. In particular, we generalize previous no-go theorems to arbitrary classical representations of quantum systems of arbitrary dimension. We also discuss recent progress in the program to identify quantum resources for subtheories of quantum theory and operational restrictions motivated by quantum computation

Warrant Economics, Call-Put Policy Options and the Fallacies of Economic Theory

In this paper we aim to trace the roots of the ongoing economic mayhem and to unmask the chorus of the tragedy which plays on the world stage. The main thesis of our work is that, despite the triumphant rhetoric praising the merits of perfect competition, the global fields of the dysfunctional market system have mushroomed in what we call Warrant Economics for the Free-Market Aristocracy . Warrant Economics unfolds in two symbiotic tenets that constitute the subtle architecture of the neoliberal edifice: (i) the systemic creation and preservation of inequality via Call-Put policy options, and (ii) the systemic exploitation of inequality via novel and toxic forms of securitisation. In effect, the power structure of insiders' capitalism that we describe, through the costless appropriation of an intricate cobweb of Call-Put structures, has distorted competition and accelerated economic concentration. We view the income distribution effect, which favours the top 1%, and the business concentration effect, which gravitates competition towards oligopolistic/monopolistic industries, as the two sides of the Warrant Economics coin. We argue that the Warrant Economics state of capitalism has been legitimised by a degenerating research programme blossomed under the fallacy that economics is the "physics of society". In this faculty of thought, we perceive the Great Recession as a symptom of Warrant Economics, rather than as a tsunami-like event.Warrant Economics, Call-Put policy options, Securitisation, Monopoly, Income distribution, Great Recession, Sovereign debt

Warrant Economics, Call-Put Policy Options and the Fallacies of Economic Theory

In this paper we aim to trace the roots of the ongoing economic mayhem and to unmask the chorus of the tragedy which plays on the world stage. The main thesis of our work is that, despite the triumphant rhetoric praising the merits of perfect competition, the global fields of the dysfunctional market system have mushroomed in what we call Warrant Economics for the Free-Market Aristocracy. Warrant Economics unfolds in two symbiotic tenets that constitute the subtle architecture of the neoliberal edifice: (i) the systemic creation and preservation of inequality via Call-Put policy options, and (ii) the systemic exploitation of inequality via novel and toxic forms of securitisation. In effect, the power structure of insiders’ capitalism that we describe, trough the costless appropriation of an intricate cobweb of Call-Put structures, has distorted competition and accelerated economic concentration. We view the income distribution effect, which favours the top 1%, and the business concentration effect, which gravitates competition towards oligopolistic/monopolistic industries, as the two sides of the Warrant Economics coin. We argue that the Warrant Economics state of capitalism has been legitimised by a degenerating research programme blossomed under the fallacy that economics is the “physics of society”. In this faculty of thought, we perceive the Great Recession as a symptom of Warrant Economics, rather than as a tsunami-like event.income distribution, monopoly, securitisation, Call-Put policy options, Warrant Economics, Great Recession, sovereign debt

Hazardous Hedging: The (Unacknowledged) Risks of Hedging with Credit Derivatives

Is hedging with credit derivatives always beneficial? The benefit of hedging with credit derivatives, such as credit default swaps, is presumed by the Dodd-Frank Act, which excludes hedge transactions from much of the new financial regulation. Yet, significant new risks can arise when credit derivatives are used to manage risks. Hedging, therefore, should be defined not only in relation to whether a transaction offsets risks, but also whether, on balance, the risks that are mitigated—as well as any new risks that arise—are outweighed by the potential benefits. Regulators of the derivatives markets must consider the risks of hedging with credit derivatives and the inability of firms to account for those risks, as well as the value to firms of mitigating risks with credit derivatives and the costs arising from their use. Among other proscriptions, the types of credit derivatives transactions that can be classified as a hedge should be limited, as well as the size of those positions. In addition, margin and collateral requirements for credit derivatives should take account of the greater risks arising from their use. Firms using credit derivatives to hedge often fail to account for the full costs associated with using those instruments. There are numerous risks that can arise. Informational asymmetries and negative externalities, however, make it difficult for firms to accurately assess those risks. Consequently, the far-reaching exemptions for hedge activity provided by the Dodd-Frank Act are inappropriate. Credit derivative hedges must be subject to regulatory oversight, rather than exemptio

Looking Up from Down Under: New Zealand’s best options amid China’s rise and the U.S. foreign policy rebalance to the Asia-Pacific

With the rise of China and the United States (US) foreign policy rebalance to the Asia-Pacific meeting in international space, small states like New Zealand have decisions to make about how to manage their balancing act between the two major powers. This research is the result of an extensive literature review of the available material coming from international relations scholars, diplomats, governments, and news media. The focus of this thesis is on the options a small state like New Zealand has amid China’s rise and the US foreign policy ‘pivot’ to the Asia-Pacific since late-2011, but some attention has been given to how the US rebalance has been rolled out and New Zealand’s position therein. The findings point to a spectrum of options available to New Zealand which goes between choosing a China-centric economic focused set of foreign policies on one end, and backing US interests both in economic and security terms on the other end. It is clear New Zealand has chosen a middle ground and has adopted a hedging strategy designed to optimize its relationship with both the US and China. The task ahead for New Zealand is to use what influence it has to foster an environment where the likelihood of conflict between the two major powers is reduced without giving up too much independence in foreign policy decision making

Modeling the impact of the volatility of the perceived counterparty credit risk on hedge accounting effectiveness

Dissertation presented as partial requirement for obtaining the Master’s degree in Statistics and Information Management, with a specialization in Risk Analysis and ManagementThe recent publication of IFRS 9 facilitates the use of hedge accounting, although some challenges arise as well. Hedge effectiveness is to be more align with risk management meaning that hedge accounting ineffectiveness will now be only related to factors such as counterparty credit risk whenever uncollateralized derivatives are to be used as hedge instruments. This master thesis is concerned with what may go wrong in a designated hedging relationship due to CVA and DVS volatility. Using Monte Carlo simulations and regression analysis the probability of hedging ineffectiveness as a function of probability of default perceived implied volatility is to be modelled.A recente publicação da IFRS 9 facilita o uso da contabilidade de cobertura, ainda que acrescente de igual modo alguns desafios. A contabilidade de cobertura passa a estar mais alinhada com a gestão de risco o que significa que a sua ineficácia passa a estar mais relacionada com fatores com risco de contraparte sempre que se usem derivados não coletaralizados como instrumentos de cobertura. Esta tese de mestrado foca-se no impacto da volatilidade do CVA/DVA na contabilidade de cobertura. Fazendo uso de simulações Montes Carlo e regressões estatísticas, procura-se modelizar a probabilidade de ineficácia das coberturas em função em da volatilidade das probabilidades de default