Leading bank in Spain becomes the first in the world to apply quantum computing in investment portfolio hedging calculation in the insurance sector
CaixaBank, the leading financial group in Spain, and D-Wave Systems Inc., a global leader in quantum computing systems, software, and services, and the only provider building both annealing and gate-model quantum computers, announced the business results for two significant financial quantum hybrid computing applications for investment portfolio optimization and investment hedging calculation. The quantum hybrid applications have significantly decreased compute time to solve complex financial problems, improving investment portfolio optimization, increasing a bond portfolio internal rate of return (IRR), and minimizing the capital needed for hedging operations, as a result of their collaboration.
“We are very appreciative of seeing this industry growing and maturing, and we look forward to upping our investment and our efforts in quantum, which is surely going to be transformational for our industry. We are very keen to work with D-Wave in this process.”
Quantum in Investment Portfolio Hedging and Bond Portfolio Optimization
CaixaBank’s Life insurance and Pensions company, VidaCaixa, leveraged D-Wave’s Leap™ quantum cloud service and quantum hybrid solvers — which combine the strengths of classical and quantum computing — to build a quantum computing application within their investment portfolio selection and allocation, and within their portfolio hedging efforts. With this project, CaixaBank Group becomes the first known financial services company in the world to apply quantum computing in investment hedging in the insurance sector. The group is evaluating putting the application into regular production not only in VidaCaixa but in other areas in the organization, over the coming months.
Latest Fintech News: Acrisure Expands Global Footprint into Spain with Acquisition of Summa Insurance Brokerage
The CaixaBank Group team utilized D-Wave’s quantum hybrid solver services to code a faster algorithm, which markedly reduces the computing time necessary to reach an optimal solution to improve the investment portfolio hedging. What normally took the bank several hours of compute time was reduced to just minutes via quantum computing technology — an up to 90% decrease in compute time over the traditional solution. This reduction of compute time facilitates increased modeling complexity, allowing for a more dynamic model that is better adapted to real-time markets; optimizes the invested capital while maintaining constant risk levels; and improves the hedging decision-making process.
When it comes to investment portfolio selection and allocation, the algorithm rapidly generates portfolios that can be optimized against a higher variety of constraints in a reduced timeframe. The result was a successful application which optimizes IRR by 10% in a chosen portfolio of bonds.
“We have always been an innovation-first organization, and very early on we recognized that investing in quantum computing could help us more efficiently provide state-of-the art products and services in order to offer the best client experience. This has been the case with this proof of concept, which confirms the bank as the first one in Spain, and one of the first in the world, to incorporate quantum computing into its daily activity,” says Gonzalo Gortazar, CEO of CaixaBank. During his participation in a commissioning ceremony in Jülich, Germany, in which D-Wave announced the first Leap quantum cloud-based system outside North America at Forschungszentrum Jülich Supercomputing Centre, Gortazar confirmed CaixaBank’s commitment to continue to explore the potential of quantum computing in the financial services industry: “We are very appreciative of seeing this industry growing and maturing, and we look forward to upping our investment and our efforts in quantum, which is surely going to be transformational for our industry. We are very keen to work with D-Wave in this process.”
“Our focus has always been on the development and delivery of quantum computing for practical applications and business value,” said Alan Baratz, CEO of D-Wave. “The finance industry is undergoing massive transformation at this moment in time, which is why the industry is poised for great business benefit from quantum computing investment. CaixaBank has a clear vision for implementing market-ready quantum applications to drive efficiency, client value, and scale. We look forward to continued collaboration with them as they expand their offerings and identify additional quantum computing use-cases.”
Latest Fintech News: MVIS Licensed the MVIS CryptoCompare Optimum Global Cryptoasset Index Exclusively to 3iQ
CaixaBank’s Quantum Journey
In 2019, CaixaBank set up a team of experts with IT technicians, mathematicians, and risk analysts dedicated to innovation in the quantum field in a multidisciplinary way, in order to explore the potential for quantum technology to enhance the bank’s different capacities in diverse fields, such as risk assessment and tail risk simulators, fraud detection with artificial intelligence and machine learning, quantum safe cryptography, portfolio selection and allocation, and data mining optimization.
One of the first projects was the implementation of a quantum algorithm capable of assessing the financial risk of two portfolios created specifically for the project based on real data, one consisting of mortgages and the other, treasury bills.
In 2020, CaixaBank developed the first machine learning algorithm to classify risks in Spanish banking leveraging quantum computing. In that case, CaixaBank combined quantum computing and conventional computing in different phases of the calculation process — to classify credit risk profiles. To do this, CaixaBank used a public data set corresponding to 1,000 artificial users, with a similar profile to existing customers, but with information configured specifically for the test.
In this project, CaixaBank used the Leap quantum cloud service to access D-Wave’s quantum hybrid solver service that incorporates the Advantage™ quantum computer. The cloud-access and real-time service empowers businesses like the bank and countless others across industries to solve large and complex business-scale problems. To date, D-Wave customers have built hundreds of early applications using their systems, including protein folding, financial modeling, scheduling, logistics, manufacturing optimization, machine learning, route optimization, and more. With these results, CaixaBank is working towards putting hybrid quantum applications into production.
Latest Fintech News: LaSalle Investment Management Selects Technology Provider RealBlocks for $77B Global Business
[To share your insights with us, please write to sghosh@martechseries.com]
