In its never-ending quest for ever greater returns and ever lower risk, the financial services industry is in a perpetual technological arms race. To better maximise the returns to their portfolios, investment managers resort to byzantine trading models to squeeze every last sliver of margin from an increasingly volatile market. Stricter compliance rules and increasing risk management needs have also compelled firms to keep track of every move that can be made.
“In this complicated trading landscape, investment managers struggle to incorporate real-life constraints, such as market volatility and customer life-event changes, into portfolio optimisation,” says a report by the IBM Institute for Business Value. Classical computing solutions just lack the capability and cost-efficiency to ensure that investment portfolios can keep up with market movements. This is especially considering the large number of scenarios and investment options that must be factored in to develop a more informed portfolio strategy.
In the hugely competitive financial services sector, many have gone ahead to bring the future forward with the belief that the newer technologies will give them a business advantage. The advent of quantum computing — a computer that makes use of quantum phenomena to perform computation — could offer the necessary computing power to greatly simplify this complex task. Quantum computing’s ability to find optimal solutions to computing problems, notes the IBM report, could allow investment managers to more precisely respond to market conditions and investor goals and create a more cost-effective trading settlement process.
Quantum computing operates based on the principles of quantum mechanics, which holds that subatomic particles operate based on different physical laws than objects at a macroscopic scale. Instead of being powered by bits — a unit of data that either reflects the values one or zero — quantum computers are powered by qubits. Qubits can reflect both values at once or even a value in between. A quantum computer can perform more difficult computation and yield more than one solution with various degrees of probability that it is the best solution.
“A qubit allows for uncertainty,” writes Amit Katwala for Wired. “If you ask a normal computer to figure its way out of a maze, it will try every single branch in turn, ruling them all out individually until it finds the right one. A quantum computer can go down every path of the maze at once,” he explains. Quantum computers can also better solve entanglement problems, where the behaviour of two particles are linked even if they are physically separated. They are distinct from supercomputers, which are classical computers scaled up to solve complex problems.
Most observers consider quantum computing to be in its very early stages. John Roese, global chief technology officer of products and operations at Dell Technologies, told the media earlier this year that 2021 would see many first time users able to learn quantum computing languages and experiment with solutions for the technology. But for Canadian quantum computing firm D-Wave Systems, the quantum age of business has already arrived.
Head of the pack
D-Wave is the world’s first commercial provider of quantum computers. While most quantum computing solutions operate on a universal gate architecture, D-Wave’s Advantage quantum computer uses a unique method known as annealing, which involves the computer finding the lowest energy state in a given system. This allows Advantage to scale faster and be much less sensitive to errors, allowing it to offer more optimal solutions, says D-Wave’s CEO Dr Alan Baratz in an interview on podcast TechFirst with John Koetsier.
“Universal quantum gate model is based on creating quantum structures using stable qubits and solving today’s problems with quantum circuits,” reports Cem Dilmegani, founder of AIMultiple. Since it is challenging for qubits to maintain stability (especially at higher quantities), scaling up at the gate model is difficult. Quantum annealing is less affected by noise than gate model quantum computing, allowing for more qubit usage and more parameters for specific problems.
D-Wave claims that using quantum annealing has allowed Advantage, which has more than 5,000 qubits and solves problems with up to 1 million variables, to be the most powerful in the world. “We can more quickly get to the point where we can solve real-world problems and deliver value,” Baratz tells The Edge Singapore. In contrast, as of September 15, 2020, IBM’s most powerful quantum computer only contains 65 qubits, with the firm promising to roll out a 1000-qubit quantum computer by 2023.
However, D-Wave’s quantum computers are significantly less versatile than rival devices. While gate-based quantum computing solutions are designed for general purpose use, the D-Wave solution can only resolve certain types of optimisation problems that involve finding the maximum or minimum solutions to a problem.
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Still, there are many compelling business uses that involve optimisation. These include protein folding, supply chain optimisation and drug trials. Over 250 early applications have currently been built with D-Wave’s quantum computing system.
“Now most of the hard problems that businesses care about are those optimisation problems,” explains Baratz, noting that quantum annealing is inherently adapted to solving such problems. A gate model system, the D-Wave CEO says, finds this significantly more difficult — it needs to solve a fiendishly difficult optimisation problem classically just to set the parameters needed to solve the original problem!
A prominent use case that D-Wave was involved in was a pilot project with Volkswagen to optimise traffic flows in Lisbon, Portugal. “This system uses a D-Wave quantum computer and calculates the fastest route for each of the nine participating buses individually and almost in real-time. This way, passengers’ travel times will be significantly reduced, even during peak periods, and traffic flow will be improved,” the German automaker tells the media. Further trials have been scheduled for other cities in Germany and across Europe.
D-Wave sees Singapore as a very important market, and it aims to contribute significantly to the country’s Smart Nation objective. Baratz says, “Quantum computing has the potential to speed up digitalisation across industries and has delivered significant value in industries like transportation, finance, and pharmaceuticals — all of which are thriving sectors for Singapore. Singapore is also an important research and development hub, and D-Wave’s Leap quantum cloud service can add significant value to this segment as well.”
Hold your horses
But there remains significant scepticism about the present commercial viability of quantum computing. For instance, Matthew Oostveen, CTO for Asia Pacific & Japan at Pure Storage, notes that it is far from certain if quantum supremacy — or the ability of quantum computers to solve problems that classical computers cannot in a reasonable amount of time — is practically achievable. Achieving quantum supremacy would be a “high watermark” in proving the readiness of quantum computing to achieve mainstream prevalence in the business world.
Additionally, quantum computers are highly sensitive instruments that require very specific requirements to operate. For instance, says Oostveen, a quantum computer must be kept at a temperature 150 times colder than deep space and be shielded from any form of interference, since this would cause the device to revert into a slow classical computer. The costs of maintaining such specific conditions could limit the cost-effectiveness of quantum computing.
Yet perhaps the greatest barrier to quantum computing’s future development is the shortage of talent in this emerging field. While universities are moving to educate suitable personnel, the present talent shortage could increase the cost of developing quantum computing and also perhaps limit its pace of growth. “Most of the people whom we call quantum scientists and engineers are jacks of all trades who have been educated as physicists or engineers,” says William D Oliver, physics professor and principal investigator in the Engineering Quantum Systems Group at MIT in an interview with the MIT Technology Review.
Still, Oostveen of Pure Storage observes that the present interest in quantum computing reflects industry concerns about the growing limitations of expanding the capabilities of classical computing. He sees governments as keen to support the development of this technology. China is building a US$10 billion ($13.3 billion) National Laboratory for Quantum Information Sciences, which is 10 times what the previous Trump Administration offered for artificial intelligence and quantum information.
Banking and financial services institutions are likely to be some of the first adopters of this technology in Asia. KPMG and a Technical University of Denmark team have already worked with an undisclosed bank to experiment on portfolio optimisation using D-Wave’s system. Oostveen also expects to see quantum computing being used by insurers to better calculate risk, while governments could use the technology to measure weather patterns and better forecast extreme weather events.
With the technology still in its early days, it remains too soon to say how quantum computing will shape the future of business. Firms, says Oostveen, should “hurry up and wait” even as they cannot wait to get their hands on this revolutionary technology.
