Why Goldman, JPMorgan Are Building Quantum Applications
Below Christopher Savoie, CEO and co-founder of quantum software company Zapata Computing, discusses the use cases for quantum applications in finance.
Q2 2021 hedge fund letters, conferences and more
To be clear, quantum computers still have a few years before they can provide a practical advantage over classical computers. But financial titans like JP Morgan and Goldman Sachs aren’t waiting: they’re already building quantum-powered applications that will be ready to run on the more powerful quantum devices of the future.
Promising Quantum Applications
Here are a few promising quantum applications that have finance customers excited:
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Pricing Complex Derivatives
Monte Carlo simulations are used to analyze the risk of credit defaults in derivative pricing. But the calculations are immensely complex and prohibitively time-consuming for classical computers. Recent research from Zapata and global bank BBVA identified a novel quantum circuit design that significantly reduces the resources needed to gain a quantum advantage in derivative pricing calculations.
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Portfolio Optimization
Quantum computers are well-suited for solving optimization problems involving many variables. For example, this would be valuable for optimizing portfolios given the regulatory and tax constraints of dozens of countries.
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CCAR/Dodd-Frank Compliance
Since the 2008 Financial Crisis, banks must assess credit risk and stress-test financial scenarios, often with computationally intensive, extremely costly calculations. If deployed correctly, quantum computing could bring meaningful performance and process improvements that directly impact daily operations costs.
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Security
Some estimate that quantum computers could crack the encryption securing the modern financial system within the next decade. They even gave it a name: Y2Q or “years to quantum.” To keep things secure, JP Morgan is already looking at creating new quantum cryptographic algorithms.
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