Quantum Harnessed for Pricing Complex Financial Derivatives

Quantum technology company Terra Quantum and investment bank Cirdan Capital claim to have developed a faster quantum-based algorithmic method for pricing exotic financial options.

Exotic options are a category of options contracts that are more complex than standard options. They are typically priced using Monte Carlo simulations, a common practice in the financial services industry but computationally expensive.

Terra Quantum provides specialized quantum software based on tensor networks as an alternative solution for traders that can be implemented on a classical computer. Terra Quantum’s option pricing calculation achieved a 75% pricing speedup over a benchmark running on the same hardware. Terra Quantum is seeking to increase this speedup as its approach evolves alongside large-scale quantum computing hardware development.

According to Terra Quantum, this speed-up could enable traders, risk managers and banks to evaluate their books and structured product portfolios more efficiently and reduce the time and cost associated with cloud computing usage.

“Speeding up options pricing can enable trading desks in volatile markets to assess their risks faster by valuing their books more often during the day, resulting in better identification of intra-day market imbalances while also helping them reduce their computational costs significantly,” said Cirdan Capital CEO Antonio de Negri.