Physics in the World of Finance
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Ever since Newton got bonked on the head with an apple and discovered gravity, scientists have found innumerable applications for the laws of physics. One such application is the usage of quantum computing to forecast financial problems. Quantum computing uses phenomena such as superposition and entanglement to perform operations on sets of data significantly faster than classical computers do, through parallel computation. This ability of quantum computers to process extremely large amounts of data rapidly opens up a realm of possibilities within the world of finance. Quantum machine learning algorithms make analyzing past patterns easier in order to predict future stock markets, assess risks, and measure volatility.
The equivalent of a bit in quantum computing is a qubit. A key characteristic of quantum systems is that they can be in a superposition of states: the qubit can be simultaneously 0 and 1. This property allows for the mass computation of data that exceeds the limits of classical computing. The benefits of quantum computing in finance are based on this fact. Within the financial realm of optimization, many algorithms such as Grover’s algorithm, Fourier Transform algorithm, and the Harrow, Hassidim and Lloyd (HHL) algorithm are exponentially faster on a quantum computer compared to a classical computer. These algorithms are specifically used in the optimization subfield of finance; quantum machine learning can substantially speed up pattern recognition. Quantum annealing is the complex process of actually implementing these theoretical computing methods on a carefully monitored system. A simple use case involving credit scoring can demonstrate this. Financial analysts want to know how data collected from past applicants can be used to determine the creditworthiness of new applicants. To do this, a matrix must be defined and converted into a QUBO problem. This problem can then be optimized by a quantum annealer.
How realistic are future applications of this innovative, game-changing technology? Quantum computing has come a long way since two decades ago when the first two-qubit quantum computer was engineered at MIT. However, the hardware needed to run today’s complex programs requires carefully monitored conditions, and in some cases, the hardware doesn’t even exist yet. The qubits are extremely fragile and even the slightest error could cause decoherence. It could be in the form of electromagnetic waves, vibrations, or temperature fluctuations, to name a few examples. Quantum computers also need constant cooling, consuming large amounts of energy. These restrictions don’t allow for much expansion of quantum computing. Despite these restraints, China has invested in a multi-billion dollar project focusing on quantum technology. The US aims to invest over 700 million dollars in QIS (quantum information science). The prospects of quantum technology and its possible applications in the future far outweigh the cost. Obviously, there’s a bright future for quantum computing--the theory has a strong foundation. Physically executing these theories pose a challenge. But Newton didn’t discover gravity for us to just stop pushing the boundaries of physics, right?
