We show that a class of binary optimization problems with complex non-quadratic objectives or constraints can be reformulated as multi-objective quadratic unconstrained binary optimization problems. When the objective and constraints depend on a small number of quadratic features and are monotone with respect to their preferred directions, at least one globally optimal solution lies in the Pareto set of the associated MO-QUBO. This enables the constraints to be evaluated classically on Pareto-optimal candidates rather than encoded as penalties. We demonstrate the approach for binary portfolio optimization under a Conditional Value-at-Risk constraint. Using Quantum Approximate Multi-Objective Optimization on an illustrative 100-asset instance, we approximate the mean-variance Pareto front using an IBM Quantum computer and derive mean-CVaR fronts through classical post-processing. The hardware results recover the overall structure of the classical front and yield near-optimal feasible portfolios for different risk bounds.
We show that a class of binary optimization problems with complex non-quadratic objectives or constraints can be reformulated as multi-objective quadratic unconstrained binary optimization problems. When the objective and constraints depend on a small number of quadratic features and are monotone with respect to their preferred directions, at least one globally optimal solution lies in the Pareto set of the associated MO-QUBO. This enables the constraints to be evaluated classically on Pareto-optimal candidates rather than encoded as penalties. We demonstrate the approach for binary portfolio optimization under a Conditional Value-at-Risk constraint. Using Quantum Approximate Multi-Objective Optimization on an illustrative 100-asset instance, we approximate the mean-variance Pareto front using an IBM Quantum computer and derive mean-CVaR fronts through classical post-processing. The hardware results recover the overall structure of the classical front and yield near-optimal feasible portfolios for different risk bounds.
In this study, the portfolio optimization problem is explored, using a combination of classical and quantum computing techniques. The portfolio optimization problem with specific objectives or constraints is often a quadratic optimization problem, due to the quadratic nature of, for example, risk measures. Quantum computing is a promising solution for quadratic optimization problems, as it can leverage quantum annealing and quantum approximate optimization algorithms, which are expected to tackle these problems more efficiently. Quantum computing takes advantage of quantum phenomena like superposition and entanglement. In this paper, a specific problem is introduced, where a portfolio of loans need to be optimized for 2030, considering ‘Return on Capital’ and ‘Concentration Risk’ objectives, as well as a carbon footprint constraint. This paper introduces the formulation of the problem and how it can be optimized using quantum computing, using a reformulation of the problem as a quadratic unconstrained binary optimization (QUBO) problem. Two QUBO formulations are presented, each addressing different aspects of the problem. The QUBO formulation succeeded in finding solutions that met the emission constraint, although classical simulated annealing still outperformed quantum annealing in solving this QUBO, in terms of solutions close to the Pareto frontier. Overall, this paper provides insights into how quantum computing can address complex optimization problems in the financial sector. It also highlights the potential of quantum computing for providing more efficient and robust solutions for portfolio management.
The goal of multi-objective optimization is to understand optimal trade-offs between competing objective functions by finding the Pareto front, that is, the set of all Pareto-optimal solutions, where no objective can be improved without degrading another one. Multi-objective optimization can be challenging classically, even if the corresponding single-objective optimization problems are efficiently solvable. Thus, multi-objective optimization represents a compelling problem class to analyze with quantum computers. Here we use a low-depth quantum approximate optimization algorithm to approximate the optimal Pareto front of certain multi-objective weighted maximum-cut problems. We demonstrate its performance on an IBM Quantum computer, as well as with matrix product state numerical simulation, and show its potential to outperform classical approaches. This study explores the use of quantum computing to address multi-objective optimization challenges. By using a low-depth quantum approximate optimization algorithm to approximate the optimal Pareto front of multi-objective weighted max-cut problems, the authors demonstrate promising results—both in simulation and on IBM Quantum hardware—surpassing classical approaches.
Large-scale portfolio optimization is hard because investors must balance risk, return, diversification, and liquidity across many assets with complex constraints. Classical methods, such as quadratic programming or metaheuristics, often become slow or less effective as the number of assets and factors grows. In this project, I explore the use of the Quantum Approximate Optimization Algorithm (QAOA) as a hybrid quantum–classical approach to portfolio selection. The framework encodes portfolio decisions as qubits and represents financial objectives—such as mean–variance trade-offs or risk-adjusted return—inside a parameterized quantum circuit. Classical optimization is then used to tune the circuit parameters so that the quantum system converges toward low-risk, high-return portfolios. Multi-factor constraints, including sector limits, liquidity rules, ESG scores, and macroeconomic risk factors, are integrated into the Hamiltonian as penalty terms. A qualitative comparison with classical solvers (e.g., mixed-integer programming and simulated annealing) suggests that QAOA can scale more gracefully in high-dimensional settings and handle complex constraint structures. Overall, the project shows how quantum hybrid optimization could support future portfolio management, linking theoretical quantum algorithms with practical, sustainability-aware investment strategies.
We present QAMOO, a novel quantum computing framework for multi-objective portfolio optimization that simultaneously optimizes four distinct financial objectives—expected return, portfolio volatility, transaction costs, and entropy-based diversification—within a unified quantum Hamiltonian formulation. Unlike prior quantum finance approaches that treat diversification as a post-hoc penalty or encode transaction fees as scalarized weights, QAMOO embeds a Shannon entropy term directly into the quantum cost function through amplitude encoding of the portfolio weight vector. This formulation enables joint optimization over a non-convex objective landscape that cannot be faithfully reduced to a classical convex program without exponential complexity growth. The framework employs the Quantum Approximate Optimization Algorithm (QAOA) with pre-trained parameter transfer, executed on IBM Quantum hardware featuring heavy-hex topology processors with up to 156 qubits. A custom Pareto engine discovers the complete frontier of non-dominated portfolio solutions, enabling investors to select allocations matching their individual risk preferences. Empirical evaluation on a multi-asset portfolio demonstrates a 0.21% hypervolume improvement over the state-of-the-art classical multi-objective evolutionary algorithm (NSGA-III), while requiring approximately 30% fewer optimization cycles. The quantum-derived portfolios exhibit 23% lower turnover-adjusted volatility after accounting for realistic transaction fees. QAMOO establishes a new research direction at the intersection of quantum computing and quantitative finance, providing a hardware-aware optimization paradigm that integrates entropy-driven diversification directly into quantum annealing and gate-model formulations.
With an increase in the complexity of society, solving multi-objective optimization problems (MOPs) has become crucial. In this study, we introduced a novel method called “quadratic unconstrained binary optimization based on the weighted normal” for solving MOPs using Ising machines, such as quantum annealing and digital annealer (DA), in the field of combinatorial optimization. The proposed method applies the penalty-based boundary intersection method to Ising machines under a setting limited to linear objective functions and maximizes the speed and performance of the DA, which is a quadratic unconstrained binary optimization-specific solver. We demonstrated the effectiveness of the proposed method by solving a real-world problem with a nonconvex shaped Pareto front (component combination problem). The results suggested that the proposed method could handle both convex- and nonconvex-shaped Pareto fronts, expanding the potential applications of Ising machines to solving complex MOPs. This development could significantly enhance decision-making processes, particularly in achieving sustainable development goals.
The optimization of investment portfolios represents a pivotal task within the field of financial economics. Its objective is to identify asset combinations that meet specified criteria for return and risk. Traditionally, the maximization of the Sharpe Ratio, often achieved through quadratic programming, has constituted a popular approach for this purpose. However, real-world scenarios frequently necessitate more complex considerations, particularly in relation to portfolio diversification with a view to mitigating sector-specific risks and enhancing stability. The incorporation of diversification alongside the Sharpe Ratio into the optimization model creates a joint optimization task, which can be formulated as Quadratic Unconstrained Binary Optimization (QUBO) and addressed using quantum annealing or hybrid computing techniques. These techniques offer promising solutions. We present a novel QUBO formulation for this optimization, detailing its mathematical formulation and demonstrating its advantages over classical methods, particularly in handling diversification objectives. By leveraging available QUBO solvers and hybrid approaches, we explore the feasibility of handling large-scale problems while highlighting the importance of diversification in achieving robust portfolio performance. We finally elaborate on the results showing the trade-off between the observed values of the portfolio’s Sharpe Ratio and diversification, as a natural consequence of solving a multi-objective optimization problem.