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Application of Quantum Computers in Foreign Exchange Reserves Management

Author

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  • Martin Vesely

Abstract

The main purpose of this article is to evaluate possible applications of quantum computers in foreign exchange reserves management. The capabilities of quantum computers are demonstrated by means of risk measurement using the quantum Monte Carlo method and portfolio optimization using a linear equations system solver (the Harrow-Hassidim-Lloyd algorithm) and quadratic unconstrained binary optimization (the quantum approximate optimization algorithm). All demonstrations are carried out on the cloud-based IBM QuantumTM platform. Despite the fact that real-world applications are impossible under the current state of development of quantum computers, it is proven that in principle it will be possible to apply such computers in FX reserves management in the future. In addition, the article serves as an introduction to quantum computing for the staff of central banks and financial market supervisory authorities.

Suggested Citation

  • Martin Vesely, 2022. "Application of Quantum Computers in Foreign Exchange Reserves Management," Working Papers 2022/2, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2022/2
    as

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    File URL: https://www.cnb.cz/export/sites/cnb/en/economic-research/.galleries/research_publications/cnb_wp/cnbwp_2022_02.pdf
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    References listed on IDEAS

    as
    1. Samuel Palmer & Serkan Sahin & Rodrigo Hernandez & Samuel Mugel & Roman Orus, 2021. "Quantum Portfolio Optimization with Investment Bands and Target Volatility," Papers 2106.06735, arXiv.org, revised Aug 2021.
    2. Manjin Zhong & Morgan P. Hedges & Rose L. Ahlefeldt & John G. Bartholomew & Sarah E. Beavan & Sven M. Wittig & Jevon J. Longdell & Matthew J. Sellars, 2015. "Optically addressable nuclear spins in a solid with a six-hour coherence time," Nature, Nature, vol. 517(7533), pages 177-180, January.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Abha Naik & Esra Yeniaras & Gerhard Hellstern & Grishma Prasad & Sanjay Kumar Lalta Prasad Vishwakarma, 2023. "From Portfolio Optimization to Quantum Blockchain and Security: A Systematic Review of Quantum Computing in Finance," Papers 2307.01155, arXiv.org.
    2. Martin Vesely, 2023. "Finding the Optimal Currency Composition of Foreign Exchange Reserves with a Quantum Computer," Papers 2303.01909, arXiv.org.

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    More about this item

    Keywords

    Foreign exchange reserves; HHL algorithm; portfolio optimization; QAOA algorithm; quantum computing; risk measurement;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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