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Financial Modeling Using Quantum Computing
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Quantum computers use principles and theories (such as quantum field theory and group theory) to describe the quantum mechanics phenomenon. Quantum mechanics principles, such as superposition, decoherence, and entanglement, have been utilized to build processors that process and relay information at exponential speed. The following section maps the quantum computer’s evolution journey and briefly describes quantum mechanics principles.
For a long time, advances in digital computers at economies of scale have suppressed the development of other computing paradigms. Moore’s law (Figure 1.3) has predicted exponential growth and advancement in the microprocessor. However, the presence of a large amount of data collected over decades of computing advancements has put a limitation on computing power, storage, and communication. To overcome the limits of the current architectures, we must overcome challenges such as finite memory, self-programmable computers, large number factorization, and faster microprocessors.
Figure 1.3 – Transistor number growth according to Moore’s law
Looking at the current limitations of digital computers due to their fundamental principles and assumptions, there is a need for new computing paradigms to emerge. To solve the problems related to various domains related to climate, process automation, industry mechanizations, and autonomous systems, there is a need to overcome the current challenges. Quantum computing, molecular computing, nature-inspired algorithms, and synergistic human-machine interaction (Computer’s Special Issue September 2016 Examines “Next-Generation Computing Paradigms,” IEEE Computer Society, https://tinyurl.com/4b5wjepk) are the current areas of interest and innovation in the pursuit of overcoming the aforementioned challenges. Figure 1.4 charts the journey and impact of the quantum-computing paradigm from theoretical to practical application:
Year |
Phenomenon |
Effect |
1905 |
Photoelectric effect was discovered by Albert Einstein and discovery of photon took place. |
Laid the foundation to discover quantum behavior in atomic particles. |
1924 to 1927 |
Max Born coined the term Quantum Mechanics and Heisenberg, Born, and Jordan discovered matrix mechanics. |
Discovery of quantum mechanics principles, which were harnessed to produce the quantum processor. |
1935 |
Erwin Schrödinger conceptualized and wrote his thought experiment known as Schrödinger’s cat. |
The principle of quantum entanglement was discovered. |
1976 |
Quantum information theory was proposed by Roman Stanisław Ingarden. |
Quantum Information science as a discipline was formulated, which laid the foundation for quantum algorithms. |
1981 |
Richard Feynman proposed that a quantum computer had the potential to simulate physical phenomena. |
The practical application of quantum mechanics was harnessed to develop working quantum computers. |
1994 |
Shor’s algorithm for factoring integers was discovered. |
Formulated the basis of cryptography for post quantum key distribution. |
1996 |
Grover’s algorithm was discovered. |
Laid the way for storing information in database form. |
2011 |
D-Wave offered the first quantum computing solution using quantum annealing. |
Opened up the possibilities of using quantum computers for commercial purposes. |
2019 |
Google claimed quantum supremacy. |
Showed a use case of quantum supremacy that can help in better encryption. |
2021 |
IBM unveiled the first 127-qubit quantum computer named Eagle. |
Facilitated faster processing of the complex NP-hard problem. |
Figure 1.4 – Journey from quantum mechanics to quantum computing
As you can see from the evolution point of view (Figure 1.4), quantum technologies are making rapid strides to overcome problems such as accurate simulation, efficient optimization, and correct pattern recognition. Once researchers can overcome the related problems that limit current users, and implement quantum technology to solve day-to-day problems, one can see how the industry-wide adoption of quantum technology can solve large-scale problems.
The next section describes some of the common terminologies and principles of quantum mechanics used in building and operating quantum computers.
Deciphering the quantum mechanics principles involved in quantum computing is an uphill task for a layperson. This section describes each quantum mechanics postulate in easy-to-understand language, explaining how it is involved in the quantum computing mechanism.
Postulate |
Definition |
Usage |
Further Reading |
Qubits |
The qubit is a basic unit of quantum information stored on a two-state device encoding information in 0s and 1s) · |
Facilitates faster processing of information for complex processes like simulation and optimization. |
What is a qubit? (quantuminspire.com) |
Quantum State |
Quantum state is the position and value of attributes (change and spin) of atomic particles obtained naturally or induced by creating physical environments (e.g. laser and heat). |
Used in processing and transforming information using qubits in a controlled environment. |
Superposition and entanglement (quantuminspire.com) |
Quantum Superposition |
It refers to a phenomenon that tells us that quantum superposition can be seen as the linear combination of quantum states. |
This property makes it hard for a system to decrypt quantum communication and thus provides a safer way to transfer information. |
Superposition and entanglement (quantuminspire.com) |
Quantum Entanglement |
Quantum entanglement refers to the linking of two particles in the same quantum state and the existence of correlation between them. |
Facilitates the ability of a system to do calculations exponentially faster by more and more qubits. |
Superposition and entanglement (quantuminspire.com) |
Quantum Measurement |
A set of mathematical operators to understand and measure the amount of information that can be recovered and processed from qubits. |
Useful in understanding the complexities of quantum mechanics. |
Quantum measurement splits information three ways - Physics World. |
Quantum Interference |
It refers to the ability of atomic particles to behave like wave particles, thus resulting in information or the collapse of qubit state thus leading to quantum coherence or dechorence. |
It measures the ability of quantum computers to accurately compute and carry the information stored in them. |
What is quantum mechanics? Institute for Quantum Computing (uwaterloo.ca) |
No Cloning Theorem |
The “no cloning theorem” is a result of quantum mechanics that forbids the creation of identical copies of an arbitrary unknown quantum state. |
The no cloning theorem is a vital ingredient in quantum cryptography, as it forbids eavesdroppers fom creating copies of a transmitted quantum cryptographic key. |
The no cloning theorem – Quantiki |
Figure 1.5 – Quantum computing glossary
The postulates mentioned in Figure 1.5 have enabled computer scientists to migrate from classical to quantum computers. As we will see in subsequent sections, postulates such as quantum interference and the no-cloning theorem have enabled quantum technologies to come to the fore, and laid the basis for achieving faster, more efficient, and more accurate computational power. The following section will look at technologies fueling innovations in quantum computing paradigms.
In its current form, quantum computing relies on a plethora of technologies to expand its footprint. It will take years for quantum computers to fully reach their commercial potential. However, when they work in hybrid mode (in tandem with classical computers), they are expected to produce much better results than in standalone mode. Let’s have a look at the technologies that make them tick:
To understand the milestones achieved by each technology, we will take the help of DiVincenzo’s criteria. In the year 2000, David DiVincenzo proposed a wish list of the experimental characteristics of a quantum computer. DiVincenzo’s criteria have since become the main guidelines for physicists and engineers building quantum computers (Alvaro Ballon, Quantum computing with superconducting qubits, PennyLane, https://tinyurl.com/4pvpzj6a). These criteria are as follows:
Figure 1.6 helps evaluate the promises and drawbacks of each kind of quantum technology based on DiVincenzo’s criteria:
Superconducting |
Trapped Ions |
Photonics |
Quantum Dots |
Cold atoms |
|
Well-characterized and scalable qubit |
Achieved |
Achieved |
Achieved |
Achieved |
Achieved |
Qubit initialization |
Achieved |
Achieved |
Achieved |
Achieved |
Achieved |
Extended coherence durations |
99.6% |
99.9% |
99.9% |
99% |
99% |
Universal set of gates |
10-50 ns |
1-50 us |
1 ns |
1-10 ns |
100 ns |
Quantification of individual qubits |
Achieved |
Achieved |
Achieved |
Achieved |
Achieved |
Figure 1.6 – DiVincenzo’s criteria
On various parameters, technologies such as superconducting and trapped ions are showing the most promise in overcoming the challenges of quantum technology. While supergiants such as IBM and Google are betting on such technology to develop their quantum computers, new-age start-up technologies, including IQM and Rigetti, are exploring others that are more compatible with the current infrastructure.
In the next section, we will detail the applications and technologies associated with the quantum computing ecosystem.
Quantum computing technology is still in its infancy. If we have to draw parallels from a technology point of view, in 1975, most of the investors were investing in hardware firms such as IBM, HP, and later Apple, to make sure that people would be able to migrate from mainframe to personal computers. Once the value from hardware had been derived, they started paying attention to software, and firms such as Microsoft came into prominence. According to a report published by BCG, 80% of the funds available are flowing toward hardware companies such as IonQ, ColdQuanta, and Pascal. Key engineering challenges that need to be overcome are scalability, stability, and operations.
Several companies and start-ups are investing in quantum computing. Countries such as the USA ($2 billion), China ($1 billion), Canada ($1 billion), the UK (£1 billion), Germany (€2 billion), France (€1.8 billion), Russia ($790 million), and Japan ($270 million) have pledged huge amounts to achieve quantum supremacy. It has been speculated that quantum solutions, including quantum sensors, quantum communication, and quantum internet, need huge investments to help countries in achieving quantum supremacy. McKinsey has pegged the number of quantum computing start-ups at 200. Also, according to PitchBook (market data analyst), global investment in quantum technologies has increased from $93.5 million in 2015 to $1.02 billion in 2021. A few well-known start-ups that have attracted huge investments recently are Arqit, Quantum eMotion, Quantinuum, Rigetti, D-Wave, and IonQ.
Figure 1.7 shows the potential application of quantum technologies in different fields based on the types of problems solved by quantum computers:
Figure 1.7 – Application of quantum computing
The following technologies are helping companies to create the value chain for end users in the quantum realm:
Figure 1.8 – Quantum technology
As observed in Figure 1.8, the quantum computing ecosystem is vast. It has multiple facets such as quantum materials, memories, and sensors, empowering the user to collect and analyze data more effectively.
In the following section, we will look at the companies powering the revolution in quantum technologies.
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