JPMorgan Chase and IBM Research Predict Options Pricing With Quantum Computers
Quantum computing gains a first foothold in investment banking
Excerpts and salient points ~
+ None of the existing quantum computers are there yet, but a number of banks — among them JPMorgan Chase (JPMC) and Wells Fargo — have already started experimenting with the technology. Their aim is to get ahead of the game, so that they are in the starting blocks as soon as quantum machines reach so-called quantum advantage — the moment when they outperform a traditional computer in at least one useful task. Running programs on IBM’s quantum computers via the cloud as part of the IBM Q Network, JPMC aims to “estimate how long it might take for quantum hardware to progress to a stage that can deliver a practical advantage for use cases of value in our business,” says Nikitas Stamatopoulos, a quantum computing researcher at JPMC.
Three qubits, though, only provide a limited number of possibilities, not sufficient in a realistic financial trading setup. But, says Woerner, the key here is that the algorithm ran on real quantum hardware, showing for the first time that it’s possible to price an option on a quantum computer. “We conceptually demonstrate quantum advantage, but at a scale where it’s not yet relevant,” says Woerner.
+ The first results are already there. In a recent experiment, JPMC and IBM scientists used three qubits in one of IBM’s 20-qubit quantum computers to run a very simple quantum algorithm. They modelled possible stock prices to estimate the price of what’s known as a European call option — an option that allows the owner to buy an asset at a specific moment in the future. “What we developed is kind of a guide to option pricing on a quantum computer,” says Dr. Stefan Woerner, an IBM mathematician. “This quantum algorithm can achieve a quadratic speed up, meaning that it needs significantly fewer samples — so while for the classical Monte Carlo simulation you need millions of samples, for quantum you only need a few thousand.”
+ Thousands of samples may still sound daunting but, says Woerner, such computations will be much faster than those run today — instead of overnight, they’d be done in near real time. That would make it possible to react quickly to shifts in financial markets and for investors to make instant decisions.
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