The Strategist

IBM: Quantum computing sets to become mainstream in financial services

03/26/2018 - 14:26

Researchers from IBM believe that quantum computers will be able to compete with conventional bit computers in the next two to three years. The researchers believe that one of the areas of practical application is a financial market where quantum computers can be used to more quickly calculate risk models, optimize asset pricing and hedge.

vanmarciano via pixabay
vanmarciano via pixabay
IBM, which actively participates in the development of quantum computers, believes that by 2020-2021 these devices can become a real competitor to traditional computers in the financial industry. Recall that quantum computers allow using a fundamentally different system of searching and comparing data compared to conventional computers. In contrast to the bit system of conventional computers, the quantum is based on a qubit. Unlike bits, it can stay in the so-called superposition - an expanded wave of possible locations. Like the bit, the qubit also has two values - 0 and 1, but thanks to quantum superposition it can simultaneously take all possible values. This greatly accelerates the search of possible values, making the quantum computer several orders of magnitude faster than usual.

IBM's vice president of work on quantum technologies, Robert Sutor, believes that banks and financial companies should now think about the practical application of the capabilities that quantum computers provide. In his opinion, ultra-high-speed quantum computers can replace the usual ones in the processes of changing prices for derivatives in real time, recognizing new automated trading strategies and calculating risky models. IBM is already working with financial giants Barclays and JP Morgan to develop specialized financial software for quantum computers.

IBM is not alone on this route. According to Matt Johnson, the director of the California software company QCware, the industry of hedge funds has already shown interest in this subject. Mr. Johnson notes that quantum computers "will allow improving the profitability in quantitative trading, including high-frequency and algorithmic trading." In addition, sufficient optimization of quantum software for financial transactions will enable banks and investment companies to significantly optimize the process of automatic pricing for a number of assets, improve the fund management strategy and hedge risk processes.

Outside the US, the Japanese investment corporation Nomura Holdings is actively working to introduce quantum computers into finance. Financiers do this in conjunction with researchers from the University of Tohoku, who are directly engaged in work on quantum computer technology. The Japanese financial corporation announced its interest in developing applications and other software that would allow the use of quantum computers in asset management operations. Nomura already plans to launch test projects on the quantum computer D-Wave, which is produced by the Canadian high-tech company D-Wave Systems. Japanese financiers consider one of their goals in applying new technologies to investment decisions - to understand effectiveness of the computer, which can recommend selling or buying a portfolio of shares in the current market conditions. In addition, the tests will be aimed at understanding the efficiency growth strategy in managing investment portfolios, as well as the correctness of algorithmic forecasting of prices for futures and other financial assets.

Other researchers note that quantum computers can also be used to more quickly recognize attempts at financial fraud and financial data theft. Paul Laverne of the French business school EDHEC believes that "when using classical computer technologies, it is still difficult to train neural networks, especially with regard to big data in the financial market. Thanks to quantum computers, we can create neural networks that are easier and faster to train, which will make it possible to better understand the algorithms of fraudulent activity and to stop it in time." Mr. Laverne also notes that quantum computers can significantly improve the performance of encryption and recognition systems, which are already widely used in the financial industry. These directions, in his opinion, are of particular interest not only for traditional players of the financial market, but also for financial and technological companies that have already demonstrated their interest in the introduction of quantum technologies in the financial sector.