Quantum computing reduces systemic risk in financial networks

This paper describes the development of an algorithm capable of reducing systemic risk by optimizing interconnections between banking institutions, firms and countries. 

To achieve this, researchers Amine Mohamed Aboussalah, Cheng Chi and Chi-Guhn Lee developed a two-step algorithm that uses quantum partitioning to make interconnections more resilient. 

In the first step, based on a virtual model of an interbank network previously implemented from the research of Brioschi et al. (Risk capital financing and the separation of ownership and control in business groups, 1989) and Elliott et al. (Financial networks and contagion, 2014), the researchers optimized these interconnections. 

In a second step, after injecting failures into the virtual interbank network, the researchers used the quantum computing algorithm, thanks to a special type of adiabatic quantum computing (AQC), to optimize each link independently to delay the propagation of risks.

Ironically, this paper was originally published one day before the failure of Silicon Valley Bank (SVB) and 10 days after Credit Suisse was bailed out by its Swiss rival UBS.