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Quantum Fintech

By Michael Castelluccio
January 1, 2021

Quantum mechanics began as abstract speculations about the physical world in 1900 but quickly evolved into theories that radically disrupted centuries of classical physics. Today, in the form of a new kind of computer that uses qubits in place of digital bits, that same quantum physics is about to disrupt financial sectors worldwide—and it might be arriving sooner than expected.

 

Inside Quantum Technology (IQT) is an industry analyst company dedicated to covering the emerging quantum technology sector. Shortly before opening its October 2020 virtual conference IQT Europe, the group posted a blog that outlined the changes it sees coming for finance from quantum computers, networks, and cryptography. The changes aren’t on any distant horizon. The group wrote, “We expect to see practically useful applications within the next 3-5 years.”

 

WHY FINANCE?

 

IQT believes finance will “be a leader in terms of adoption and integration of the new technology” because of the natural fit. Like chemistry and encryption, the financial sector has inherent structures and operations woven tight with mathematical procedures that suit the operations of quantum computers. And quantum computers will operate at speeds and complexity unattainable by classical computing. The benefits will be measured in revenues and cost savings.

 

There are three specific incentives for the adoption of quantum computers:

 

  1. Quantum computing is a natural extension of high-performance computing (HPC), and as the blog points out, “HPC is already entrenched at banks and other financial institutions and there is already a high degree of interest in quantum computing at financial institutions.” The blog observes, “Some big banks are already taking on dedicated quantum staff, who can take HPC to the next stage for strategic advantage.”

 

  1. For any company struggling with the size and complexity of Big Data, quantum computing will appeal to those needing support. It’s unlikely that quantum desktops will be available any time soon, but cloud services are being enabled by some of the major quantum computer builders, such as IBM, Google, Amazon, and D-Wave Systems. A number of these have quantum services already available online, and a few are offering time on their computers for quantum software developers and even students.

 

 

  1. Managing mathematical unpredictability is another strength of quantum computers. IQT points out, “Financial problems of the kind that big banks, insurance companies and hedge funds deal with are complex and take time to solve.” Quantum computers will be better and much faster at solving many of those.

 

EARLY ALGORITHMS

 

IQT explains, “[W]e estimate that there must be at least 30 banks and other financial institutions that are dabbling in quantum right now. Please consider that quantum computing can do the math orders of magnitude faster and do not require fault-tolerant [redundant] computing. Noisy quantum computers with only a few hundred qubits will be enough, and soon other banks will be following Goldman Sachs, JP Morgan Chase, Barclays, Citigroup, BBVA and others who are already building their quantum assets.”

 

IQT sees banks on the nearer horizon for quantum implementation because of the algorithms that are being developed. “We expect Quantum Monte Carlo (QMC) methods to be the first family of quantum algorithms to bring significant revenue generation/cost savings for the financial sector. Classical Monte Carlo methods are already widely used for modeling and pricing financial derivatives, running on parallel CPUs [central processing units] and GPUs [graphics processing units]. The quantum analogs will provide significant speedups. So it makes sense we believe for quantum to invade the classical realm first in Monte Carlo.”

 

If Monte Carlo is the first landing site, IQT sees several quantum machine—learning sectors that could also be early targets, including quantum Bayesian inference. And one final area is cited as a logical target. “Optimization problems account for a large portion of financial problems and are well suited to quantum machines…. These include calculating optional trading trajectories, optimal arbitrage opportunities, and optimal feature selection in credit scoring.”

 

The opportunities are there, and according to the analysts presenting at the convention, many aren’t just waiting around for the quantum hardware to mature. It’s important to remember, however, that classical computing isn’t going to be replaced by quantum. Quantum will take its place alongside classical computing. That point was emphasized by a number of the companies at the IQT Europe Conference.

 

Michael Castelluccio has been the technology editor for Strategic Finance for 26 years. His SF TechNotes blog is in its 23rd year. You can contact Mike at mcastelluccio@imanet.org.


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