Quantum Computing Assignment - 1

Use case in finance and quantum cryptography

The large, fault-tolerant quantum computers of the future will have the potential to

disrupt and revolutionize many aspects of the financial services industry. Some of

the most commonly-cited quantum financial solutions include:

● Running Monte Carlo simulations with considerably more efficiency, thus

enabling greater accuracy in financial forecasting

● Finding optimal mixes of various financial instruments, thus optimizing

investment portfolios to minimize risks and maximize returns

● Analyzing significant volumes of financial data, thus allowing the

identification of potential risks, as well as the discovery of suggestions as to

how to mitigate and minimize these risks

● Calculating complex derivatives with speeds and accuracy well beyond the

capabilities of classical computers

 ● Modeling data to find patterns, perform classifications, make predictions,

and target customers in ways that are not otherwise possible with classical

computing resources

Further commonly-cited use cases include:

● Assessing the credit worthiness of organizations and individuals, also known

as credit scoring

● Determining the current fair market values of assets, also known as asset

valuation

● Analyzing irregular behaviors, thus enabling fraud detection

 ● Aiding in the development of various trading strategies

● Predicting the likelihood and impact of negative events, also known as

investment risk analysis

Again, the lists provided above are just the most common examples. Considerable

investment and research into quantum computing for finance continues, and the

discovery of other innovative uses can be expected.

Quantum Computing Demystified

Classical computers are built around transistors. Over the decades, these transistors

have gotten smaller and smaller. They have gotten so small, in fact, that the physics

we observe in the world around us begins to give way to the physics that governs
the universe at the smallest of scales. This physics of the very small, known as

quantum mechanics, interferes with the proper operation of these nanoscale

transistors.

Rather than giving up due to this obstacle, two strategies have emerged. One,

obviously, is to develop novel approaches to fabricating transistors. But the other is

to try to actually harness quantum mechanics. And that’s where quantum

computers come in.

Inside a quantum processor, there are no transistors. There may be some transistors

nearby helping to control what’s going on, but the actual computation uses

components much smaller than the smallest transistors. With one exception, the

basic unit of quantum computation, called a qubit, is a particle. Common examples

of such particles are atoms, electrons, and photons.

These particles can be so much more than the 0 or 1 that a transistor represents. In

fact, the state of a single qubit can be represented by a complex number, which can

encode quite a bit of information. But the real power of quantum computing comes

from the interactions of qubits, which results in something called quantum

entanglement. Whereas each additional transistor in a classical computer provides

one more 0 or 1, each additional entangled qubit in a quantum computer doubles

the amount of information that is encoded. Perhaps more incredibly, all of that

quantum information can be processed simultaneously. Classical computers, in

contract, process information sequentially.

While this may make it seem like quantum computers will solve all the world’s

problems, that’s not actually the case. There are many tasks for which quantum

computers underperform classical computers. However, there are problems that are

extremely challenging, if not impossible, for classical computers. And it is with

these challenging problems that quantum computers have the potential to excel.

A key takeaway here is that users need not know how quantum computers work at

this level. As we note in our article titled “Exploring the Advantages of

Cloud-Based Quantum Computing,” real quantum computers are available via the

cloud. No knowledge of engineering, configuration, or maintenance is required to

use them. This knowledge can be helpful, but it’s not required.

As we further note in our article titled “Quantum-as-a-Service: Definition,

Advantages and Examples,” quantum applications are available via the cloud, as

well. Applications of Quantum-as-a-Service include improved risk analysis,

pricing models, and forecasting for the financial industry. Some of these services

don’t even require any knowledge of computer programming.

Quantum Computing in Financial Services
Listing all of the various use cases in quantum computing in finance can seem

repetitive, because many use cases are simply variations of the same approaches.

The number of quantum algorithms and subroutines is still relatively small, but

they can be applied in many different ways. We can abstract away much of the

detail and provide a handful of high-level classifications:

● Risk analysis, which is the analysis of huge volumes of data with the goal

being to identify potential risks so that it can then become possible to

mitigate those risks

● Portfolio optimization, which involves finding the right mixes of financial

instruments that allow the maximum possible returns on investments within

acceptable tolerances for risk

 ● Fraud detection, which relies on the quick processing of vast amounts of

data, thus making it possible to detect fraudulent activity in a timely manner

● Real-time trading, which again relies on the rapid processing of considerable

volumes of information, and which enables decision making based on the

latest market information

● Financial modeling, which involves the quick and efficient execution of

complex calculations that are really slow, and potentially even impossible,

with classical computation

This list of classifications will not grow as quickly as lists of use cases, but it is

reasonable to assume that novel approaches to quantum computing in finance

might require an expansion of this list from time to time.

Quantum Computing Use Cases in Finance
It’s one thing to merely list use cases and classifications. What’s more valuable is

extracting analyses and insights from this information. A McKinsey & Company

report titled “How quantum computing could change financial services” offers

some such analyses:

● Although many finance problems are formulated as optimization problems,

the earliest benefits of quantum computing might come simply from

improving upon existing machine learning tasks

● The reversibility of quantum operations, regardless of the use case, may help

financial companies satisfy specific legal requirements regarding the actions

they take

● The scalability of the problem space, doubling with each additional

entangled qubit, benefits all use cases, especially those that are

resource-intensive

● Whereas classical solvers may have to restrict the dimensionality of data so

as to not run out of memory, quantum solvers, in principle, have no such

limitation

● Combinatorial problems are viewed as another early winner, especially with

demonstrations of neutral atoms solving subsets of classically-intractable

problems such as Max Independent Set

 ● Use cases, mentioned by name, include portfolio optimization, credit risk

analysis, capital allocation, market risk analysis, smart routing, trade

matching, private interbank trading, resource allocation, and tailored

services

A Quantum Zeitgeist article titled “Quantum Computing in Finance: The Possible

Use Cases” goes into greater detail into this first point. Examples of financial

industry use cases are provided for regression, classification, clustering, generative

modelling, feature extraction, reinforcement learning, and natural language

processing machine learning tasks.

Finally, the second-to-last point needs to be made more often. Maximum

Independent Set and Maximum Clique, for example, both have real-world use

cases and cannot efficiently be solved with classical computers. However, their

efficient solution has already been demonstrated on neutral atom quantum

computers. All finance use cases that can be formulated as such problems,

therefore, are poised to offer immediate competitive advantages as the number of

atoms available scales upward.