Backtesting Quantum Computing Algorithms for Portfolio Optimization

Abstract

In portfolio theory, the investment portfolio optimization problem is one of those problems whose complexity grows exponentially with the number of assets. By backtesting classical and quantum computing algorithms, we can get a sense of how these algorithms might perform in the real world. This work establishes a methodology for backtesting classical and quantum algorithms in equivalent conditions, and uses it to explore four quantum and three classical computing algorithms for portfolio optimization and compares the results. Running 10 000 experiments on equivalent conditions we find that quantum can match or slightly outperform classical results, showing a better escalability trend. To the best of our knowledge, this is the first work that performs a systematic backtesting comparison of classical and quantum portfolio optimization algorithms. In this work, we also analyze in more detail the variational quantum eigensolver algorithm, applied to solve the portfolio optimization problem, running on simulators and real quantum computers from IBM. The benefits and drawbacks of backtesting are discussed, as well as some of the challenges involved in using real quantum computers of more than 100 qubits. Results show quantum algorithms can be competitive with classical ones, with the advantage of being able to handle a large number of assets in a reasonable time on a future larger quantum computer.

Keywords

• Backtesting
• conditional value at risk variational quantum eigensolver (CVaR VQE)
• portfolio optimization
• quantum computing (QC)
• variational quantum eigensolver (VQE)