Multiverse, Ally Financial, Protiviti demonstrate quantum progress in finance
Multiverse Computing, which has been working on applying quantum computing to use cases in finance, this week announced progress from a project it had worked on with Ally Financial and consulting firm Protiviti.
The partners were able to demonstrate how a new algorithm run on a quantum annealing system can optimize investment portfolios automatically with returns that match traditional portfolios, using a hybrid classical/quantum approach to finding a solution to an optimization problem that classical computers still find difficult to solve. In the short-term financial planners can use the algorithm to help create high-performing portfolios made up of smaller groups of stocks, but as quantum computers come to fruition even more value could be delivered.
“Financial managers can use the algorithm today to meet specific investing goals or other customized requirements for clients,” said Mehdi Bozzo-Rey, Chief Revenue Officer at Multiverse Computing. “Once the hardware achieves quantum advantage, we will be able to solve this problem instantaneously and solve it exactly.”
“For example, this new algorithm can be used for managing ETF funds, reducing overhead costs for financial managers while helping keep fees low for customers,” according to Konstantinos Karagiannis, Protiviti’s director of Quantum Computing Services. “It’s a major step forward in placing Ally Financial at the forefront of quantum computing research in the financial industry.”
The parties explained the nature of the project in a statement:
“Leveraging previous hybrid classical-quantum approaches, the researchers built investment portfolios for companies in the Nasdaq 100 and the S&P 500, and used daily returns over the course of a year. The team then used the algorithm to build investment portfolios that can generate the same financial returns as traditional portfolios with significantly smaller groups of stocks. Replicating financial indexes using a limited subset of assets, known as cardinality constraints, has historically been an extremely difficult challenge. The number of stocks in the team’s Nasdaq 100 fund was four times smaller than traditional portfolios and 10 times smaller in the S&P 500 fund. The research team also built an enhanced tracking portfolio as part of the project, which showed that the quantum-built portfolios significantly outperformed the risk profile of the target index by up to 2x.”
Details of the project can be found in this paper.
Finance has been a major focus for Multiverse since its founding, and has been considered a top use case arena by other quantum firms as well. An IQT Inside Scoop story this week discussed how quantum computing and quantum annealing are being used to tackle financial problems.
Dan O’Shea has covered telecommunications and related topics including semiconductors, sensors, retail systems, digital payments and quantum computing/technology for over 25 years.