(ARXIV.org) A research article by Jeffrey Cohen, Alex Khan, and Clark Alexander shares the results of their investigation of the use of quantum computers for building a portfolio out of a universe of U.S. listed, liquid equities that contains an optimal set of stocks. Starting from historical market data, the authors looked at various problem formulations on the D-Wave Systems Inc. D-Wave 2000Q(TM) System (hereafter called DWave) to find the optimal risk vs return portfolio; an optimized portfolio based on the Markowitz formulation and the Sharpe ratio, a simplified Chicago Quantum Ratio (CQR), then a new Chicago Quantum Net Score (CQNS). We approach this first classically, then by our new method on DWave. Our results show that practitioners can use a DWave to select attractive portfolios out of 40 U.S. liquid equities.
Two significant innovations: reformulated a classical ratio algorithm (Sharpe ratio) into a linear algorithm to fit onto a quantum annealer and receive comparable results. The second is we innovate significantly to build the QUBO, including affine transformation and scaling to improve annealing results.
Portfolio Optimization of 40 Stocks Using the D-Wave Quantum Annealer
