Monte Carlo simulations are commonly used to assess credit risk, stress-test financial scenarios, and set the prices of derivatives. They are also extremely complex, costly, and time-consuming, making them an ideal candidate for quantum speedup.
In our collaboration with BBVA, we designed novel quantum circuits that reduced the resources required to run quantum Monte Carlo simulations by orders of magnitude. However, the work revealed that Monte Carlo is not feasible on near-term devices and will not be viable for several years, if ever.
Explore our collaboration with BBVA detailing the quantum algorithms and circuit designs developed for Monte Carlo simulations in financial risk assessment. This ground-breaking work demonstrates both the potential and current limitations of quantum computing in the finance sector.
Optimize how capital is allocated to achieve risk and return goals.
Optimize for risk across lending product portfolios.
Reduce tracking errors in portfolios that replicate the performance of financial indices such as the S&P 500.
Determine the optimal execution strategy for high-frequency trading to increase risk-adjusted returns.
Dynamically hedge existing investments with balanced assets, such as bonds, to minimize risk.
Accelerate numerical simulations to improve precision and computational time for pricing financial derivatives such as Interest Rate Swaps, Swaptions, Path-dependent Options, and Basket Options.
Analyze time series data to identify price moves and forecast trends to build more profitable trading strategies.
Generate synthetic data to augment sparse datasets to more appropriately price new products.
Generate synthetic data to augment sparse datasets used to train forecasting models to better predict rare financial scenarios, such as defaults and market crashes.
Improve graph clustering analysis and other methods to detect fraudulent activity.
Identify key features in customer data to more accurately score credit risk and insurance risk to more accurately price insurance premiums.
Accelerate Monte Carlo simulations for Credit Valuation Adjustments (CVAs), Fundamental Review of the Trading Book (FRTB), Incremental Risk Charge (IRC) and Value at Risk (VaR) calculations.
