Quantum computing specialist D-Wave Systems and financial group CaixaBank have applied quantum computing to insurance investment portfolio hedging calculation for the first time.
The companies reported a 90% decrease in time-to-solution for investment portfolio hedging and optimization using D-Wave’s quantum cloud and quantum hybrid solver services.
Portfolio hedging is a risk management strategy that offsets potential losses from investment in one asset by taking an opposite position in another.
An optimized portfolio is one that is best for an individual investor according to an objective, such as maximizing return and minimizing risk, through the assets selected.
D-Wave started working with CaixaBank last year and the companies identified two use cases: portfolio optimization and risk reduction in hedge funds. They used D-Wave’s quantum hybrid solver service that combines quantum and classical computing to solve complex problems.
“Certain problems, and certain parts of problems, are not complex enough for quantum computers,” said D-Wave VP of professional services Mark Snedeker.
“Our quantum hybrid solvers bring the best of classical and quantum to complex problems, identify the parts of the problems that should run on the different systems and automate that experience for the user, so they get the best answers to their use cases.”
The quantum element of this service uses D-Wave’s Advantage quantum computer that has more than 5,000 qubits and 15-way qubit connectivity. This means each qubit is connected to 15 other qubits, enabling it to handle more complex calculations without adding further physical qubits.
More qubits – a qubit is a basic unit of quantum information, analogous to a bit in classic computing – and greater connectivity in combination mean a quantum computer can solve bigger problems.
CaixaBank saw up to a 90% decrease in time-to-solution for investment portfolio hedging and portfolio optimization over existing solutions hedge fund optimization that previously used to take the company several hours has been reduced to minutes using the hybrid solver service in D-Wave’s Leap quantum cloud service, according to Snedeker.
The bank’s use of D-Wave’s quantum hybrid solver services helped code a faster algorithm to rapidly generate portfolios of assets that best meet investor requirements. These in turn can be further optimized against a higher variety of constraints such as risk, return and types of assets in a reduced timeframe, according to CaixaBank director of innovation Xavier Rebés.
As well as the reduced compute time, the solution also optimized the bond portfolio internal rate of return (IRR) by up to 10% in a chosen portfolio of bonds.
“The reduction of compute time allows for a more dynamic model that is better suited to real-time markets and further enhances capabilities to facilitate increased modeling complexity, optimize invested capital while maintaining constant risk levels and improve the hedging decision-making process,” Rebés said.
D-Wave and CaixaBank are continuing their partnership to get quantum hybrid applications into production. D-Wave works with several other financial services organizations including Multiverse and BBVA, PayPal and Mastercard.
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