Quantum Annealing for Dynamic Portfolio Optimization under Realistic Transaction Costs

• URL: http://arxiv.org/abs/2607.03218v1
• Date: Fri, 03 Jul 2026 11:32:06 GMT
• Title: Quantum Annealing for Dynamic Portfolio Optimization under Realistic Transaction Costs
• Abstract summary: The study considers a multi-period portfolio re-balancing setting in which asset weights are subject to lower and upper bounds, class-level exposure restrictions, and turnover limitations.<n>On the quantum side, the portfolio selection problem is reformulated as a quadratic unconstrained binary optimization model through a finite binary encoding of asset weights.<n>On the classical side, benchmark allocation strategies are introduced to provide an economically meaningful reference for performance assessment.
• Score: 0.0
• License: http://arxiv.org/licenses/nonexclusive-distrib/1.0/
• Abstract: This paper investigates and compares quantum and classical investment strategies for portfolio construction under realistic trading and allocation constraints. The study considers a multi-period portfolio re-balancing setting in which asset weights are subject to lower and upper bounds, class-level exposure restrictions, and turnover limitations. On the quantum side, the portfolio selection problem is reformulated as a quadratic unconstrained binary optimization (QUBO) model through a finite binary encoding of asset weights, and subsequently embedded into a constrained quadratic model (CQM) solved by a hybrid quantum-classical optimization workflow. On the classical side, benchmark allocation strategies are introduced to provide an economically meaningful reference for performance assessment. The proposed framework jointly evaluates portfolio efficiency from two complementary perspectives: business performance, measured through return, volatility, and a measure of the trade-off between them, the Sharpe ratio; and computational performance, assessed through solver structure, constraint handling, and hardware execution characteristics. The resulting comparison provides a rigorous basis for understanding the practical role of quantum annealing in constrained portfolio optimization, while clarifying both its modeling advantages and its current implementation limitations relative to established classical approaches.

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