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Quantum Computing is Coming to Empower Banks…

There is growing interest in the application of red-hot, emerging field of Quantum Computing, with a possible use in Banking, especially in the Trading and the Risk spaces.

A classical computer uses bits (binary digits) which have only two possible states: 1 or 0. A quantum computer uses quantum bits, or qubits, which can exist in many states simultaneously.

Qubits can be in a state — or “superposition” —  ‘on’, ‘off’ or in-between all at the same time. By stringing qubits together, makers of quantum computers promise to unleash an exponential explosion in processing power. Google says its prototype quantum computer performed a calculation in three minutes and 20 seconds that would take today’s most advanced supercomputer approximately 10,000 years- memorably termed as ‘quantum supremacy’. IBM has also built a working model.

Banks’ research efforts center on trying to design new types of algorithms capable of being run on quantum machines.

The first of these efforts involve a class of optimisation problems that take advantage of the probabilistic nature of quantum computing to analyse a large number of possible outcomes and pick the most desirable, rather than following the precise logic paths of traditional computers.

The work has been focused on so-called Monte Carlo simulations which are complex calculations that banks normally carry out daily to assess their overall risk positions. The same techniques are used in options pricing.

Besides boosting their computing resources, the banks hope that the quantum machines will greatly reduce the time it takes to analyse complex risk positions, making it possible to adjust on the go rather than relying on an overnight calculation.

Being able to quote prices on complex financial products to customers in real time should also make it possible to open up bigger markets. In order to quote a price to a customer, banks have to be able to see all the risks around a trade – something for which a quantum computer can be suitable.

The same technology could also make it possible to optimise the diverse investment portfolios of wealthy clients in the private banking domain.

Further in the future, the banks also hope to use quantum computing to speed up the machine learning systems that is behind their push into Artificial Intelligence. That could make it possible to spot anomalies in markets more quickly, or identify opportunities that were not apparent at all before.

Quantum computers, whose principles come from quantum mechanics in physics – that can be in two states simultaneously, may prove to be a useful technology for tasks requiring optimisation and comparison; that is, to find the best route or choice by examining all the options. Something that could be of interest to investment bankers.

Building a full-scale, commercial quantum computer version could take time, partly because of the ultra-low temperature environment required for it to function.

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Posted on Jan 14, 2020
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