Abstract We present a quantum algorithm for portfolio optimisation. Specifically, We present an end-to-end quantum approximate optimisation algorithm to solve the discrete global minimum variance portfolio model. This model finds a portfolio of risky assets with the lowest possible risk contingent on the number of traded assets being discrete. We provide a complete pipeline for this model and analyse its viability for noisy intermediate-scale quantum computers. We design initial states, a cost operator, and ansätze within a binary encoding. Further, we perform numerical simulations to analyse several optimisation routines, including layerwise optimisation, utilising constrained optimisation by linear approximation and dual annealing. Finally, we consider the impacts of thermal relaxation and stochastic measurement noise. We find dual annealing with a layerwise optimisation routine provides the most robust performance. We observe that realistic thermal relaxation noise levels preclude quantum advantage. However, stochastic measurement noise will dominate when hardware sufficiently improves. Within this regime, we numerically demonstrate a favourable scaling in the number of shots required to obtain the global minimum—an indication of quantum advantage in portfolio optimisation.
Abstract We present a quantum algorithm for portfolio optimisation. Specifically, We present an end-to-end quantum approximate optimisation algorithm to solve the discrete global minimum variance portfolio model. This model finds a portfolio of risky assets with the lowest possible risk contingent on the number of traded assets being discrete. We provide a complete pipeline for this model and analyse its viability for noisy intermediate-scale quantum computers. We design initial states, a cost operator, and ansätze within a binary encoding. Further, we perform numerical simulations to analyse several optimisation routines, including layerwise optimisation, utilising constrained optimisation by linear approximation and dual annealing. Finally, we consider the impacts of thermal relaxation and stochastic measurement noise. We find dual annealing with a layerwise optimisation routine provides the most robust performance. We observe that realistic thermal relaxation noise levels preclude quantum advantage. However, stochastic measurement noise will dominate when hardware sufficiently improves. Within this regime, we numerically demonstrate a favourable scaling in the number of shots required to obtain the global minimum—an indication of quantum advantage in portfolio optimisation.
This thesis is devoted to four modern quantum optimisation algorithms and their applications. In the first chapter, we provide a complete Quantum Approximate Optimisation Algorithm (QAOA) pipeline for the discrete global minimum-variance portfolio (DGMVP) problem. We introduce an ansatz with efficient initial-state preparation, new hard mixing operators satisfying the constraints of the DGMVP problem, and scalable cost operators utilising binary encoding of the qubits. Benchmarking the method with the most effective optimisation strategies---dual annealing and unfrozen layerwise optimisation---indicates a scaling advantage over classical methods in finding the global optimum of the DGMVP problem. In the second chapter, we show an end-to-end quantum/quantum-inspired Goemans-Williamson semidefinite programming (SDP) method for relaxing Quadratic Unconstrained Binary Optimisation (QUBO) problems and extracting their rounding energy. Our method identifies a class of QUBO instances that is effectively solvable in polylogarithmic time relative to the problem dimension, under the assumptions of Pauli sparsification of the QUBO cost matrix, reducibility of the diagonal constraints, and efficient evaluation of the corresponding Gibbs-state expectation values. Further, we identify the commuting 1D Hamiltonian and the Kronecker graph as practically important instances. Our numerical experiments show that our method solves the SDP and QUBO with up to 250 variables for 1D Hamiltonian instances and achieves results competitive with the best classical solver for Kronecker graphs, giving strong evidence of the power of our algorithm. In the third chapter, we improve the current QAOA method with an iterative warm-start initial-state preparation method. We implement the t-th order statistic state as the warm-start initial state generated from each QAOA optimisation loop. We achieve an improved approximation ratio when solving the 3-regular MaxCut problem, and find that the worst-case approximation ratio converges to that of the best classical algorithm for p=1 QAOA. Additionally, our method achieves more favourable scaling than standalone QAOA, single-string warm-started QAOA, and a classical constrained-sampling approach when solving the DGMVP problem. In the fourth chapter, we provide a hard-constrained Grover adaptive search (GAS) method for fixed-sum quadratic binary optimisation problems, and an extension of the alternating direction method of multipliers (ADMM) framework for fixed-sum quartic binary optimisation. Our method guarantees at least a quadratic speed-up over the classical method, and exponentially reduces the gate count for solving fixed-sum binary optimisation when compared with the soft-constrained GAS in the fault-tolerant quantum computing regime. In summary, our contributions include efficient algorithms and novel frameworks that substantially improve performance and broaden the applicability of these quantum optimisation methods. The proposed methods exhibit favourable scaling behaviour and indicate potential quantum advantages in solving challenging optimisation problems, thereby motivating further research at the interface of quantum computing and optimisation.
Portfolio optimization, a core combinatorial optimization problem in quantitative finance, requires balancing return maximization and risk minimization within discrete asset sets. Classical algorithms often struggle with scalability and local optima traps when handling large-scale asset pools, limiting their practicality in dynamic markets. This study proposes a complete Quantum Approximate Optimization Algorithm (QAOA) workflow for portfolio optimization, from problem formalization to experimental validation. We first transform the portfolio optimization problem into a Quadratic Unconstrained Binary Optimization (QUBO) framework, then design a parameterized QAOA circuit with adjustable layers to balance expressiveness and noise resilience. We propose a methodology using Qiskit for quantum simulation and classical optimizers for parameter tuning, we propose implementing the algorithm on real-world S&P 500 stock data. We could also analyze the impact of quantum hardware noise and propose mitigation strategies, providing actionable insights for Noisy intermediate-scale quantum computing (NISQ)-era implementations. This work bridges quantum algorithm design with real-world financial applications, offering a theoretical framework for quantum-driven portfolio optimization.
Abstract We present a detailed study of portfolio optimization using different versions of the quantum approximate optimization algorithm (QAOA). For a given list of assets, the portfolio optimization problem is formulated as quadratic binary optimization constrained on the number of assets contained in the portfolio. QAOA has been suggested as a possible candidate for solving this problem (and similar combinatorial optimization problems) more efficiently than classical computers in the case of a sufficiently large number of assets. However, the practical implementation of this algorithm requires a careful consideration of several technical issues, not all of which are discussed in the present literature. The present article intends to fill this gap and thereby provides the reader with a useful guide for applying QAOA to the portfolio optimization problem (and similar problems). In particular, we will discuss several possible choices of the variational form and of different classical algorithms for finding the corresponding optimized parameters. Viewing at the application of QAOA on error-prone NISQ hardware, we also analyse the influence of statistical sampling errors (due to a finite number of shots) and gate and readout errors (due to imperfect quantum hardware). Finally, we define a criterion for distinguishing between ‘easy’ and ‘hard’ instances of the portfolio optimization problem.
Portfolio optimization under conditions of risk and market uncertainty remains a foundational challenge in financial economics and investment management. Classical optimization frameworks, including mean–variance models and stochastic programming approaches, often struggle with high-dimensional asset universes, nonlinear correlations, and dynamic market regimes. This paper examines quantum computing approaches to portfolio optimization under risk and market uncertainty, focusing on hybrid quantum–classical algorithms designed to enhance combinatorial optimization and probabilistic modeling. By integrating quantum annealing, variational quantum circuits, and quantum-enhanced sampling techniques with classical financial analytics, the study evaluates their potential to improve computational efficiency and scenario sensitivity. The analysis considers both theoretical advantages and practical limitations within the Noisy Intermediate-Scale Quantum (NISQ) era. The findings suggest that quantum-assisted optimization may complement traditional portfolio models by expanding feasible solution spaces and improving robustness under uncertainty, thereby contributing to more adaptive and resilient investment strategies.
Portfolio optimisation in intelligent economic systems faces the challenge of portfolio explosion caused by expanding asset scales, making it difficult for classical solvers to obtain high-quality solutions within a limited timeframe.This paper proposes a hybrid quantum-classical optimisation framework that combines the global search capabilities of quantum annealing with the constraint expression capabilities of variational quantum algorithms, while reducing quantum resource requirements through asset graph partitioning.In experiments covering 20 to 120 real-market assets, the hybrid framework achieved an area under the curve of 0.716 for a portfolio of 120 assets, representing an approximately 29% improvement over classical genetic algorithms; it maintained an area under the curve of 0.921 even under a noise level of 10 -3 , demonstrating greater robustness than pure quantum annealing methods.The research confirms that the hybrid paradigm is a viable approach for solving large-scale combinatorial optimisation problems on current noisy quantum devices.
This paper investigates and compares quantum and classical investment strategies for portfolio construction under realistic trading and allocation constraints. The study considers a multi-period portfolio re-balancing setting in which asset weights are subject to lower and upper bounds, class-level exposure restrictions, and turnover limitations. On the quantum side, the portfolio selection problem is reformulated as a quadratic unconstrained binary optimization (QUBO) model through a finite binary encoding of asset weights, and subsequently embedded into a constrained quadratic model (CQM) solved by a hybrid quantum-classical optimization workflow. On the classical side, benchmark allocation strategies are introduced to provide an economically meaningful reference for performance assessment. The proposed framework jointly evaluates portfolio efficiency from two complementary perspectives: business performance, measured through return, volatility, and a measure of the trade-off between them, the Sharpe ratio; and computational performance, assessed through solver structure, constraint handling, and hardware execution characteristics. The resulting comparison provides a rigorous basis for understanding the practical role of quantum annealing in constrained portfolio optimization, while clarifying both its modeling advantages and its current implementation limitations relative to established classical approaches.