Photo by Nadine Shaabana on Unsplash
"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."
Financial institutions, like BMO and Scotiabank, devote an enormous amount of resources and time to pricing portfolios of trading products as the organization must consider different possible market scenarios. Currently, institutions use Monte Carlo estimation to model and price derivatives, often running in huge data centers of parallel CPUs and GPUs.
"BMO is constantly working to leverage technologies that will help us better serve our customers, and improve the operations and efficiencies of our bank. Our collaboration with Xanadu was informative, providing valuable insight into quantum computing as an emerging technology," said Lawrence Wan, BMO Financial Group's Chief Architect and Head, Enterprise Platform Services. "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."
As part of the proof-of-concept project with BMO and Scotiabank, Xanadu built a software suite to simulate quantum Monte Carlo on a variety of trading products. This allows for benchmarking of the quantum speedup using conventional high-performance computers. Xanadu is a torchbearer for developing quantum software and machine learning. Their Strawberry Fields software stack, released in 2018, was the first quantum software to incorporate a simulator built with machine learning functionality. This was followed by a release of PennyLane, later in the year, envisioned as the TensorFlow of quantum machine learning.
"Scotiabank is committed to investing in cutting edge technologies, like quantum, as part of our wider digital transformation," said Stella Yeung, SVP & CIO Scotiabank Global Banking & Markets. "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."
Xanadu has also been cementing its position as a thought leader in quantum finance. As well as developing software for simulation and benchmarking, the project with BMO and Scotiabank focused on how to implement the quantum Monte Carlo algorithm on real hardware using a process called quantum compiling. Quantum hardware is being developed competitively by a number of companies but requires a few more years of maturing before being capable of running full scale quantum Monte Carlo. Despite this, the BMO, Scotiabank and Xanadu project predicted speedups of hundreds to thousands of times faster — a glimpse into the new era of high technology derivatives trading.