The technology has the potential to be a major disruptor of derivatives trading
Two of Canada’s largest financial institutions have invested in a firm which aims to disrupt the trading of derivatives through quantum computing technology.
The techy bit is involved but essentially quantum computing allows data to be processed in a fraction of the time it takes traditional computers, which means potential for improvement in areas such as real-time pricing in derivatives trading.
BMO Financial Group and Scotiabank have been working with quantum computing firm Xanada to discover computational speedups and improved accuracy in the trading products space using a quantum algorithm developed by Xanadu.
Monte Carlo estimation is used by FIs to model and price derivatives, but it takes a lot of time and resources; the injection of quantum computing – such as Xanadu’s quantum Monte Carlo - supercharges the process.
"Quantum Monte Carlo is perhaps the strongest evidence yet of the huge impact quantum will have on finance," said Dr. Tom Bromley, researcher and project lead at Xanadu. "This project allowed us to forecast the disruptive potential for derivatives pricing over the coming years, paving the way for near real-time pricing and significantly lower power overhead."
Insights learned
Lawrence Wan, BMO Financial Group's Chief Architect and Head, Enterprise Platform Services, said that they learned a lot from the collaboration.
"With the growing dependence on data analysis, and technologies such as AI, the promise of quantum computing to vastly speed up delivery of insights may benefit functions across the financial services industry," he said.
Stella Yeung, SVP & CIO Scotiabank Global Banking & Markets agreed that the proof-of-concept collaboration was informative.
"Scotiabank is committed to investing in cutting edge technologies, like quantum, as part of our wider digital transformation," she said. "This collaboration gave us the opportunity to explore using next-gen quantum computing to optimize what we are able to offer our global customer base. Our expertise in the derivatives space enabled Xanadu to successfully build a quantum Monte Carlo model, with impressive results. Leveraging quantum computing to accelerate data collection and insights will enable speed to market and benefit our customers."
