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Interviews

Interview with IBM's Stefan Woerner on quantum computing's potential to disrupt financial services

Friday 5 April 2019 | 08:19 AM CET

The development and commercialisation of super-fast computers has made (and is making as we speak) huge progress across the world in the last two years

In October 2018 Europe launched the Quantum Technologies Flagship, a EUR 1 billion initiative to fund 5,000 of Europe’s leading quantum technologies researchers over the next ten years. Two months later, the US government passed the National Quantum Initiative Act, a law which aims to allocate up to USD 1.2 billion in funding to keep American quantum information science competitive on the global scale. With over USD 1 billion in initial funding, China is also building the National Laboratory for Quantum Information Sciences, which could emerge as a key centre of gravity for future research and development.

In January 2019, at Consumer Electronics Show (CES), IBM announced its first commercial quantum computer for use outside of the lab. Clearly, all these announcements highlight the fact the quantum computing topic cannot be ignored anymore.

Today we speak with Stefan Woerner, Global Leader, Quantum Finance & Optimization, IBM Research - Zurich, to learn about IBM Q and how quantum computing can be successfully applied to financial services.

Could you please tell us more about IBM’s quantum computing initiative - IBM Q?

IBM has been active in the field of quantum computing research from early on. For instance in 1981, during a conference co-hosted by MIT and IBM on the physics of computation, physics Nobel Laureate, Richard Feynman, suggested building a quantum computer.

Years later, in 2016, we launched the IBM Q experience in a bid to make small quantum computers accessible to the public, via the cloud, for the first time. Based on these, in December 2017, IBM Q Network was rolled out.

From Fortune 500 companies to public research institutions and startups, the IBM Q network gathers 45 members worldwide, with the purpose of identifying use cases where quantum computing can make a difference, accelerating the research around this technology and, of course, educating our partners. Network members include names such as JPMorgan Chase, Barclays, Mitsubishi UFJ Financial Group, and many more.

How is IBM, with the help of quantum computing, transforming the financial services market?

Some of the problems in the financial industry we are currently aiming to decipher are portfolio optimisation, transaction settlement and risk analysis. Promising areas for quantum computing are applications where Monte Carlo Simulations play a role, such as performing risk analysis or pricing of derivatives.

This type of simulation is capable of constructing many possible scenarios of the future based on some stochastic/probabilistic models. Some examples of possible scenarios include checking how your portfolio would perform over time, or what the fair price of a financial derivative would be over a period of time. As a result, businesses could estimate with confidence whether their capital on hand is enough to cover possible future losses or not.

Nevertheless, to achieve reasonable accuracy, Monte Carlo simulations need to be fed with lots of such scenarios/samples. And here is where quantum computing might be able to help by achieving a quadratic speed up. This means that, if a classical computer requires millions of classical samples for a Monte Carlo simulation, quantum computer could do the same with a few thousand quantum samples. And this might allow the users to reduce simulation time from a day or even several days to near real-time or hours. Therefore, this might enable you to test many “what if” scenarios and help businesses identify possible problems earlier and react faster in the financial industry.

According to Wired, super-fast computers could boost financial companies’ abilities of calculating risk. How do they accomplish this?

The quantum computing industry distinguishes between quantum ready era (learning about the radically new programming model used in quantum computing) and quantum advantage era (the speedup that quantum devices offer). Currently, we are going through the era of getting quantum ready. As a consequence, we are working on understanding where quantum computer can make a difference by identifying the use cases and learning how to implement quantum algorithms. Once the hardware is large enough, we can really achieve an advantage and enter the era of quantum advantage, where quantum computers could make a difference compared to classical computing.

Therefore, at the moment, the tests are on a small scale. IBM has recently run such a quantum algorithm for risk analysis for a very small problem using real hardware. But this was done experimentally, as it will still take a few years until the hardware is large enough to really run such a real world problem on a quantum computer.

Quantum computing’s extreme computational power has the capability to break state of the art encryption methods and security measures for classical data. Have technological companies started to analyse/find solutions to quantum attacks?

Today’s communication over the internet is done via encrypting and decrypting messages using two different types of encryption: symmetric and asymmetric.

In symmetric encryption, two parties use a secret key in order to send messages, and to encrypt and decrypt their communication. However, they need a safe channel to exchange the secret key, and that’s where asymmetric encryption comes in. Users have a public key shared with the world to encrypt the message, and a private key to decrypt it. So, in a secure channel, you first use an asymmetric encryption exchanging like a secure handshake between two parties, and then symmetric encryption to exchange the actual data.

Symmetric encryption is not a problem when it comes to quantum computers as they cannot really attack symmetric encryption much more efficiently than the classical one. Asymmetric encryption, in contrast, is a big issue. In the future, once we have a large enough quantum computer, one could break today's asymmetric encryption and then listen to encrypted communication.

So, it gets critical if you are sending encrypted sensitive data today over the Internet, that will still be important, let’s say 15-30 years from now, which is usually the case for banks. Then somebody could just save the internet traffic of today, keep it for this time and, in the future, use a quantum computer to actually decrypt the past communication. That's the reason why people and companies should already start to think about quantum safe encryption or post quantum encryption schemes (e.g. lattice based encryption) by changing the way you encrypt classically.

The National Institute of Standards and Technology has already initiated a standardisation process for encryption with an initial 65 algorithms, including submissions from IBM. Therefore you can already begin to pilot quantum safe crypto schemes on classical computers, for instance in a hybrid scheme combined with today’s best practices. That way you are compliant today and safe for the future, by making sure that the future quantum computer cannot be used to attack you or your communication.

About Stefan Woerner

Dr. Stefan Woerner is the Global Leader for Quantum Finance & Optimization and a Research Staff Member in the Quantum Technologies group of the Science & Technology department at IBM Research - Zurich. He received a Master of Science in Applied Mathematics from ETH Zurich in 2010, and a Doctor of Sciences in Operations Management from ETH Zurich in 2013 for his thesis on Convex Optimization in Supply Chain Management. The focus of his research is the development and analysis of quantum algorithms for optimization and machine learning as well as their practical applications, particularly in finance or supply chain management.

 About IBM Research

IBM Research is one of the world’s largest and most influential corporate research labs, with more than 3,000 researchers in 12 labs located across six continents. We play the long game, investing now in tomorrow's breakthroughs. Our scientists are charting the future of artificial intelligence, breakthroughs like quantum computing, how blockchain will reshape the enterprise and much more.

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