Quantum computing is no longer in its early stages. There already exists quantum computers with more qubits than a classical computer is capable of efficiently simulating. This current stage is considered intermediate and is therefore called the NISQ era (noisy intermediate-scale quantum). The main feature of this current stage is that there are still not enough qubits to perform quantum error correction, hence the noisy name. In this context of quantum computing without quantum error correction and with an intermediate number of qubits, variational algorithms gained prominence and, among them, there is one called QAOA (quantum approximate optimization algorithm). As the name suggests, this is a quantum algorithm that approximates the solution of optimization problems. The objective of this work was to apply this algorithm to solve an optimization problem in the finance area known as portfolio optimization. This application took place both in an ideal way (without noise) and in a way consistent with the current capacity of quantum computers (with noise). Both were simulated using IBM’s Python tool for simulation and access of quantum computers via cloud called Qiskit. The results suggest that the QAOA performance with noise was, as expected, worse than the ideal case, but still satisfactory within the limitations of the method.
Quantum computing is no longer in its early stages. There already exists quantum computers with more qubits than a classical computer is capable of efficiently simulating. This current stage is considered intermediate and is therefore called the NISQ era (noisy intermediate-scale quantum). The main feature of this current stage is that there are still not enough qubits to perform quantum error correction, hence the noisy name. In this context of quantum computing without quantum error correction and with an intermediate number of qubits, variational algorithms gained prominence and, among them, there is one called QAOA (quantum approximate optimization algorithm). As the name suggests, this is a quantum algorithm that approximates the solution of optimization problems. The objective of this work was to apply this algorithm to solve an optimization problem in the finance area known as portfolio optimization. This application took place both in an ideal way (without noise) and in a way consistent with the current capacity of quantum computers (with noise). Both were simulated using IBM’s Python tool for simulation and access of quantum computers via cloud called Qiskit. The results suggest that the QAOA performance with noise was, as expected, worse than the ideal case, but still satisfactory within the limitations of the method.
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.
The Quantum Approximate Optimization Algorithm (QAOA) has emerged as a promising tool for accelerating optimization processes in the Noisy Intermediate-Scale Quantum (NISQ) era. Compared to classical methods, QAOA efficiently solves optimization problems, often formulated as Quadratic Unconstrained Binary Optimization (QUBO) problems. Classical quantum simulators are crucial for evaluating quantum algorithms due to limited quantum resources. However, QAOA's performance can vary with different simulation methods. This study analyzes QAOA's performance using various quantum simulators (e.g., density _matrix, statevector, and matrix_product_state) and demonstrates the benefits of HPC-QC integrated systems in solving QUBO problems on an active learning workflow. By simulating QAOA on dense, large-matrix QUBO problems, we evaluate accuracy and problem-solving time. We also assess QAOA's performance on local computers and HPC-QC inte-grated systems, using Oak Ridge Leadership Computing Facility (OLCF)'s Frontier supercomputer with local Qiskit Aer and remote IBM Quantum simulators.
The Quantum Approximate Optimization Algorithm (QAOA) is a quantum algorithm proposed for Noisy Intermediate-Scale Quantum (NISQ) devices and is regarded as a promising approach to combinatorial optimization problems, with potential applications in the financial sector. In this study, we apply QAOA to the portfolio optimization problem, which is one of the central challenges in financial engineering. A portfolio consists of a combination of multiple assets, and the portfolio optimization problem aims to determine the optimal asset allocation by balancing expected return and risk. In the context of quantum optimization, portfolio optimization is often formulated using discrete variables. Unlike conventional binary formulations, we consider a ternary portfolio optimization problem that accounts for three states-holding, not holding, and short selling-and compare its performance using different mixer operators. Specifically, we implement QAOA with the standard mixer and several XY Mixers (XY Ring, XY Parity Ring, XY Full, and QAMPA), and conducted simulations using real data based on the German stock index (DAX 30) for portfolios consisting of 5 and 8 assets. Furthermore, we introduce noise based on a depolarizing channel to investigate the behavior of the algorithm in realistic environments. The results show that while XY Mixers exhibit superiority in noiseless settings, their advantage degrades in noisy environments, and the optimal choice of mixer depends on both the number of QAOA depths and the noise strength.
Abstract The Quantum Approximate Optimization Algorithm (QAOA) is a quantum algorithm proposed for Noisy Intermediate-Scale Quantum (NISQ) devices and is regarded as a promising approach to combinatorial optimization problems, with potential applications in the financial sector. In this study, we apply QAOA to the portfolio optimization problem, which is one of the central challenges in financial engineering. A portfolio consists of a combination of multiple assets, and the portfolio optimization problem aims to determine the optimal asset allocation by balancing expected return and risk. In the context of quantum optimization, portfolio optimization is often formulated using discrete variables. Unlike conventional binary formulations, we consider a ternary portfolio optimization problem that accounts for three states—holding, not holding, and short selling—and compare its performance using different mixer operators. Specifically, we implement QAOA with the standard mixer and several XY Mixers (XY Ring, XY Parity Ring, XY Full, and QAMPA), and conducted simulations using real data based on the German stock index (DAX 30) for portfolios consisting of 5 and 8 assets. Furthermore, we introduce noise based on a depolarizing channel to investigate the behavior of the algorithm in realistic environments. The results show that while XY Mixers exhibit superiority in noiseless settings, their advantage degrades in noisy environments, and the optimal choice of mixer depends on both the number of QAOA depths and the noise strength.
In this work, we benchmark two prominent quantum algorithms: Quantum Imaginary-Time Evolution (QITE) and the Quantum Approximate Optimization Algorithm (QAOA) for obtaining the ground state of Ising-type Hamiltonians. Specifically, we apply them to the Markowitz portfolio optimization problem in quantitative finance, on both digital quantum computers and local quantum simulators with controllable two-qubit errors (noise). In noiseless settings, we find that QAOA achieves excellent convergence to the optimal results. Under noisy conditions, the QITE method exhibits greater robustness and stability, though it incurs substantially more classical numerical cost. In contrast, we demonstrate that QAOA offers better scalability and can still yield robust results if the noise can be effectively mitigated. Our findings provide valuable insights into the trade-offs between scalability and noise tolerance and demonstrate the practical potential of quantum algorithms for solving real-world optimization problems on near-term quantum devices.
The quantum approximate optimization algorithm (QAOA) is a promising quantum-classical hybrid technique to solve combinatorial optimization problems in near-term gate-based noisy quantum devices. In QAOA, the objective is a function of the quantum state, which itself is a function of the gate parameters of a multi-level parameterized quantum circuit (PQC). A classical optimizer varies the continuous gate parameters to generate distributions (quantum state) with significant support to the optimal solution. Even at the lowest circuit depth, QAOA offers non-trivial provable performance guarantee which is expected to increase with the circuit depth. However, the existing analysis fails to consider non-idealities in the qubit quality i.e., short lifetime and imperfect gate operations in realistic quantum hardware. In this article, we investigate the impact of various noise sources on the performance of QAOA both in simulation and on a real quantum computer from IBM. Our analyses indicate that the optimal number of stages (p-value) for any QAOA instance is limited by the noise characteristics (gate error, coherence time, etc.) of the target hardware as opposed to the current perception that higher-depth QAOA will provide monotonically better performance for a given problem compared to the low-depth implementations.