The Banking Executive Magazine - February 2023 Issue

Quantum Computing QUANTUM COMPUTING IN BANKING AND FINANCE According to Insider Intelligence, many banks have started working on quantum computing projects that could one day become part of their normal operations. The speed-up in computing time is the main driver to use quantum computing in financial services. Quantum computing finan- cial applications include: • Portfolio optimization: Quantum computers can run Monte Carlo simulations in impressive time. These simulations analyse risk- and-return trade-offs on combina- tions of investments to optimize a portfolio based on a customer’s goals and risk tolerance. • Derivatives pricing: This is a com- plex undertaking because the price of derivative instruments depends on the price of an underlying asset. Variable factors like counterparty risk, time to expiration, and interest rates all influence the price. Quan- tum computing can simulate a large number of scenarios in sec- onds to determine an appropriate price. • Cybersecurity: Quantum comput- ing would enable fraudsters and bad actors to build a program that could break down the cryptogra- phy of a cybersecurity program in seconds. But the technology could be used in useful ways to create an the BANKING EXECUTIVE 14 ISSUE 170 FEBRUARY 2023