QuSAA – Quantum Algorithms for Strategic Asset Allocation

Quantum Computing Optimizes Investment Portfolio of Insurance Companies

Asset allocation has been a focus of our department »Financial Mathematics« for many years. This refers to the allocation of assets to various asset classes such as bonds, equities, real estate, currencies and precious metals. Our mathematics has been supporting the portfolio management of R+V Lebensversicherung AG for years. In the BMBF project »QuSAA – Quantum Algorithms for Strategic Asset Allocation«, a team led by Dr. Pascal Halffmann and Dr. Ivica Turkalj, together with our project partners, is now also investigating possible new approaches using quantum computing (QC).

At least once a year, many companies and investors are faced with the question of how best to invest their existing capital in the coming year. The assessment of »best« encompasses several points in which the respective objectives must be reconciled. Particularly in view of several crises and economic uncertainties, it is currently more complex than ever to make these portfolio decisions. Our algorithms and software help with this.

Special Case: Asset Allocation of Insurance Companies

It is important for insurance companies to achieve the highest possible long-term return with a defined level of risk. However, special framework conditions apply to insurance companies, which must be taken into account in every calculation: Under the name »Solvency II«, the EU issued a directive in 2009 that has applied to all insurance companies since 2016. Solvency II places particular demands on companies' capital adequacy and is therefore another important target function in asset allocation and the work of our department »Financial Mathematics«. Together with R+V Lebensversicherung AG, Halffmann's team has already implemented its own approach to strategic asset allocation. This takes into account the solvency ratio under Solvency II on the one hand and incorporates many other relevant portfolio characteristics on the other.

In the project, the participants formulate an optimization problem by gradually simplifying the complexity of the target functions. The asset class data required for the optimization is based on estimated values from very computationally complex simulations. This is where quantum computers come into play, as the project »QuSAA« is investigating the extent to which computing on quantum computers can help to better manage the complexity of the problem and deliver more robust results. But the »how« still needs to be researched.

Quantum Future: Be Ready, When It’s Ready

The project provides a feeling for whether such problems can be solved even more efficiently on quantum computers and where this makes sense at all. After all, this is a completely new approach to optimization problems. The special thing about this application project is that the specialist knowledge has already been tried and tested in the department of »Financial Mathematics« for years and does not need to be built up first. This basis also includes the partnership with R+V, which has existed since 2008. The guidelines and the company are well known, which provides a good basis for finding new QC approaches together.

Looking to the quantum future, the team and Halffmann are still cautiously optimistic: »The new technology has a lot of potential, but we are still a long way from being able to demonstrate a real quantum advantage in practice – even in this project. It will simply take time before we are as advanced with this new technology as we are with high-performance computers. But it's great to be involved right from the start. Because the motto for everyone now is Be ready, when it's ready.« Research and industry want to be prepared when that time comes, and the various QC projects are paving the way.

An einem IBM Quantum System One können Industrie und Forschung jetzt unter deutschem Recht anwendungsbezogene Quantensoftware entwickeln, sie testen und ihre Kompetenzen ausbauen.
© IBM Research
Industry and research can use an IBM Quantum System One to develop quantum software and test it for specific applications – including quantum algorithms for strategic asset allocation.

Our Project Partner

Funding and Duration

The project »QuSAA – Quantum Algorithms for Strategic Asset Allocation« runs from 01.06.2021 to 31.05.2024 and is funded with 1.5 million euros (86 percent of which by the Federal Ministry of Education and Research (BMBF)).