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Suman Suhag's avatar

As number of asset, constraint, and market parameters increase, classical portfolio optimization models becomes quite complicated to solve. Financial institutions should manage multiple objectives such as expected return, risk and return, liquidity, cost of trading, regulations, and ESG preferences under uncertain markets. Therefore the problem is a multi-objective optimization one.

Quantum-enhanced portfolio optimization is the combination of artificial intelligence (AI), classical high-performance computing (HPC), and quantum optimization algorithms that can help explore larger solution spaces faster for some optimization problem classes.

Quantum is expected to augment the AI tools, rather than replace them as a supplement for the high computationally demanding optimization problems when quantum computers become a mature technology. Core Capabilities: Portfolio Optimization, Risk management, Capital Allocation, Trading Optimization, and derivative portfolio optimization. The Benefits of Quantum Enhanced portfolio Optimization: Better exploration in the complexity space. Managing complex portfolio sizes.

Faster portfolio scenario analysis and estimation.

Improve portfolio rebalancing capabilities and adaptability with AI. Potential speed benefits on certain optimization and simulation tasks (once fault tolerant QCs are ready). Limitations: Noise in the systems, immature quantum hardware.

Application that utilize the current QCs only with limitations for the financial use case, or require robust fault tolerant QCs. Financial specific workflows, governance and regulatory compliance needs integration, explainable AI in order to increase trust in predictions for the use case. Market and asset price predictions are expected to work better from AI not QCs.

Strategic Vision: The future will be around hybrid intelligence.

Standard classical compute will dominate most of the standard analyses and transactions. The new era with the usage of AI will bring deeper insights and the capability to adapt to market volatility, and QCs will help augment computing capability for specific computationally challenging parts of the portfolio optimization and simulation processes when becoming mature. Financial Institutions that invest early with the appropriate tools (QCs aware algorithms, AI Analytics, a better computed infrastructure, governance) will be ready to take benefit from the future quantum enabled world.

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