UOB, quantum technologies centre partner to explore quantum computing for derivatives valuation
Large-scale simulation methods are being used currently but they can be time and resource-intensive
[SINGAPORE] UOB is working with Singapore’s Centre for Quantum Technologies (CQT) to assess how quantum computing could process large volumes of scenarios more efficiently under certain conditions. This will make derivatives valuation faster, more precise and more scalable.
In the initial phase, the project will focus on path-dependent instruments, whose valuations depend on multiple market variables and historical price movements.
“These characteristics make them among the most computationally demanding products to value using traditional methods,” UOB and CQT said in a media statement on Wednesday (Jul 1).
CQT researchers at the National University of Singapore (NUS) will work on the project with support from the National Quantum Computing Hub.
Derivatives – which include options, futures and swaps – play an increasingly important role in managing financial and market risks.
Currently, large-scale simulation methods such as the Monte Carlo method are used to estimate their value. But these simulations run thousands of potential future market scenarios to derive a fair price, which can be time and resource-intensive.
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This collaboration aims to bridge the gap between academic research and real-world financial applications, the parties said.
Patrick Rebentrost, principal investigator at CQT and associate professor in the Department of Computer Science at NUS, said: “We know in theory that quantum computing could help with the difficult task of pricing financial derivatives. The collaboration with UOB is an opportunity to advance that theory into practice, testing our methods against real-world scenarios.”
Lawrence Goh, UOB’s head of group technology and operations, added: “By investing early and building a clear deployment road map, we are laying the foundation for the next generation of banking capabilities – where research and innovation are translated into practical solutions that strengthen risk management and resilience, catalyse scale and provide long-term value to our customers.”
