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Quantum Finance Has an Algorithm for CVA, It Just Needs the Circuits

By Becky Bracken posted 29 May 2021

Pricing derivatives is a complicated affair that since the 2007-08 market crash requires the calculation of what’s called a Credit Valuation Adjustment (CVA), which factors in a number of complicated variables to calculate investment risk, making it a very expensive compute investment.

If that sounds like a job for quantum, there’s good news; there’s a pretty good algorithm for that now. But there’s a hook, researchers need quantum circuits to catch up in order to test and run them.

Banking behemoth BBVA has been investing in quantum finance tools to optimize portfolios, assign credit scores and boost profits in trading currency. BBVA also partnered with a company called Zapata to develop quantum solutions for developing CVAs and figure out the hurdles in the bringing them to market as quickly as possible.

There’s plenty of incentive, particularly for the financial sector. Some banks, according to Christopher Savoie, Zapata’s CEO and founder can spend up to 50 percent of its total compute budget on generating CVAs, he told Axios, calling it a “big financial burden for them right now.”

The Zapata research applied the Monte Carlo simulation to calculating CVA and while it wasn’t able to beat classical computing, the test allowed the team to evaluate how to improve quantum computing for finance for practical use.

“The study has revealed both challenges towards quantum advantage and opportunities for improving the quantum algorithm,” according to the findings. On paper, the math adds up, but scaling the systems to the size required to start calculating something as complex as CVA is another matter. The team needs to test their algorithm but the circuits to pull it off aren’t out there yet.

A common refrain among the quantum community is an interest in attracting more engineering know-how to creating quantum hardware. Again, there’ plenty of incentive, everyone is racing for a slice of what is predicted to be a $2.2 billion quantum computing market by 2026.

“At BBVA we believe that quantum technology will be key to solving some of the major challenges facing society this decade,” Carlos Kuchkovy, BBVA’s head of global research and patents said. “Addressing these challenges dovetails with BBVA’s strategic priorities, such as fostering the more efficient use of increasingly greater volumes of data for better decision-making as well as supporting the transition to a more sustainable future.”


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