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Illustration: Sarah Grillo/Axios

A new quantum algorithm could eventually make it easier for banks to manage the systemic risk that helped bring down the financial system more than a decade ago.

Why it matters: Major financial institutions spend huge computing resources in calculating the systemic risk that may be contained in their portfolios. Replacing classical computing with a quantum architecture could allow them to do it faster and cheaper.

What's happening: Zapata Computing, a Massachusetts-based quantum software company, and the Spanish bank BBVA are collaborating to develop a quantum algorithm to target credit valuation adjustment (CVA).

  • CVA is a change to the market value of derivative adjustments that account for credit risks from counterparties. It was introduced as a new requirement for banks following the 2007–2008 financial crisis, when the banking system was almost brought down because of failure to account for the risk.
  • This kind of analysis is so enormously complex that some major banks "spend half of their compute budget chasing this problem," says Christopher Savoie, Zapata's CEO and founder. "It's a big financial burden right now."

Where it stands: Zapata's algorithm outlines the hardware specifications future quantum machines would need to run it, which gives computer makers both proof of concept and a target to shoot for.

How it works: A quantum approach, says Zapata CTO Yudong Cao, can "actually bend the curve by taking advantage of unique aspects of quantum mechanics that doesn't have any classical counterparts."

  • While current-generation quantum computers are still too error-prone and small to execute Zapata's algorithm, if hardware can be improved, Cao says the algorithm could lead to a "hundred to thousandfold reduction in the amount quantum resources required" to carry out the necessary calculations.
"If you can have an output with the same accuracy in a simulation of possible future scenarios for example in 5 hours instead of 25 hours, you will have 20 hours more to analyze which decision is better."
— Escolastico Sanchez, BBVA executive director

The bottom line: Quantum computing hardware gets most of the attention — possibly because it looks like this — but quantum software is just as important.

Go deeper

Pacific Northwest soon to be ground zero for record-shattering heat

Computer model projection showing the unusually strong heat dome over the Pacific Northwest on Sunday. (PivotalWeather).

A heat wave is bringing unprecedented high temperatures to the Pacific Northwest — a region of the country typically cooled by the ocean, rather than central air conditioning. The heat will begin Friday and last into early next week.

Why it matters: The heat wave will shatter monthly and all-time temperature records in the Pacific Northwest. Some of the records could break the old milestones by several degrees.

At least one person killed, 99 missing after deadly Miami-area condo collapse

A massive search-and-rescue operation is underway after a portion of a 12-story residential building in Surfside, Florida, collapsed at approximately 1:30 a.m. Thursday, according to AP.

The latest: Officials have accounted for 102 people who lived in the high-rise Champlain Towers South, but 99 people remained unaccounted for by midafternoon, said Mayor Daniella Levine Cava of Miami-Dade County at a press conference Thursday afternoon.

Biden strikes infrastructure deal with bipartisan group of senators

President Biden announced Thursday that he had agreed to a roughly $1 trillion infrastructure plan with a bipartisan group of ten senators, declaring: "We have a deal."

Why it matters: The agreement on the size and scope of an infrastructure package is a major achievement for Biden, who has long been a proponent of bipartisanship, but the compromise still faces serious hurdles in the House and Senate.